Why Alternative Data Should Be Reported
The Political and Economic Research Council's submission for Project 10 to the 100th. PERC is a non-proft 501(c)3 think tank dedicated to unleashing the power of information. For more information, visit our website at www.infopolicy.org.
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An estimated 35-54 million Americans are currently outside the credit mainstream due to having a thin-or no-file credit report. These consumers are disadvantaged in achieving responsible, affordable credit due to the lack of payment information available to assess their credit risk under the current reporting system. These active consumers do not benefit from their participation in the credit system, because not all services which extend credit (such as utility and telecom services) report the positive payment behaviors of their customers to credit bureaus. Gaining access to traditional forms of credit proves difficult, as creditors base risk level on information about a consumers history of repayment. A credit Catch-22 exists: one must have credit to get credit.
Reporting this positive non-financial data to credit bureaus could improve the quality of life for millions of Americans and billions of global citizens. The underserved credit class (in America these are minorities, the young, the elderly, recent immigrants) would benefit the most, but the peripheral societal benefits are also enormous. As the underserved credit class is vetted through risk modeling, some will gain access to credit that will enable them to purchase cars, homes and experience an increased quality of life. Furthermore, the use of alternative data provides creditors with better risk modeling information, allowing them to extend loans to deserving members of the underserved class. Improved risk modeling provides lenders with increased business and fewer delinquencies, thereby increasing profits and driving national economies. The result of this project is the empowerment of creditworthy members of the underserved class to achieve financial security.
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