Alternative Data Improves Credit Union Lending Decisions

by Annie Boden Financial Analysis & Financial Underwriter

The credit union industry in the United States has been under pressure recently. Lending decisions have become more difficult as the economy has slowed and traditional data sources have become less reliable. Credit unions are turning to alternative data sources to help them make better lending decisions. This data includes utility bills, rent payments, and public records. Alternative data can help credit unions make more informed lending decisions and improve their chances of success in a challenging economy.

How is Alternative Credit Data So Important Today?

The use of alternative credit data, also known as FCRA-regulated data, is growing in popularity among lenders to assess the creditworthiness of borrowers who may not have a traditional credit history. There are many reasons why alternative credit data is so essential today.

 

 First, alternative credit data allows lenders to reach a broader pool of potential borrowers, obtain a more accurate picture of a borrower's financial situation, and make faster and more informed lending decisions. It has become so important in today's economy, where many consumers struggle to obtain traditional forms of credit.

 

 Second, alternative credit data can provide a more accurate picture of a borrower's financial situation. It is because alternative data sources often include information such as utility payments and rental history, which can give lenders a better sense of how well a borrower manages their finances.

 

 Third, FCRA-regulated data can help lenders make faster and more informed lending decisions. Its sources are typically updated more frequently than traditional ones, so lenders can get an up-to-date picture of a borrower's financial situation before making a loan decision.

 

 

How is Alternative Data Becoming a Game Changer in Lending Decisions?

Historically, credit unions have relied heavily on credit scores and employment history when making lending decisions. However, with the rise of alternative data, it is starting to change.

 

 Alternative data is becoming more and more important in making lending decisions, and it's something that all credit unions should keep an eye on.

 

As the world is increasingly digitized, lenders have had to adapt their methods to assess risk accurately. One way credit unions have done this is by incorporating alternative data into their lending decisions.

 

One study found that using alternative data in lending decisions led to a 20% reduction in defaults among subprime borrowers.

While there are some concerns about the use of alternative data (including privacy concerns), the benefits outweigh the risks. For lenders, alternative data is a game changer that can help them make better, more informed lending decisions.

 

Conclusion

In conclusion, the use of alternative data in credit union lending decisions has increased in popularity in recent years. FCRA-regulated data can provide a complete picture of an applicant's financial history and helps to assess risk more accurately. However, it is important to note that not all alternative data sources are created equal; some may be more reliable than others. Ultimately, it is up to each credit union to decide which alternative data sources they feel comfortable using in their lending decisions.

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Created on Dec 2nd 2022 11:53. Viewed 181 times.

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