Think your credit card issuer only looks at your income and FICO
score when deciding what kind of credit card you deserve? Not
As millions of Americans recover from the sharpest downturn
since the Great Depression, a growing number of credit card issuers
are quietly testing new, more comprehensive ways to evaluate
In many cases, that includes looking at a wide range of
nontraditional factors, such as the value of your home, whether or
not you have a criminal history, how often you change addresses and
what kind of professional license you may hold.
Lenders hope that by supplementing
traditional credit scores
with nontraditional information, they'll be able to offer more
cards to more people -- without getting stiffed the way they did
before, say experts.
"Lenders want to grow their business again," says Ankush Tewari,
director of strategy and market planning for LexisNexis RiskView,
which offers card issuers alternative credit scores based on public
records information. "They want to open their doors again, but they
don't want to repeat the same mistakes they made prior to the
How it began
Before the downturn, issuers grew their businesses by offering
cards to nearly anyone who'd take one. Now, after writing off
billions of dollars in unpaid loans, they are trying a more
"Issuers are using other data sources to make more informed
decisions," says Philip Philliou, a New York City-based consultant
to card issuers. Nontraditional data, such as payment history on a
cellphone or an applicant's frequent use of
, "helps the issuer develop a clearer picture of who the cardholder
is," he says.
The use of nontraditional data also helps lenders identify
people whose traditional
took a beating during the recession, but who are normally much
better at handling credit than their scores would suggest, say
"These are people who actually are a good credit risk," says Tom
Johnson, vice president of business development at Zoot
Enterprises, which helps issuers approve applicants for new cards.
"They just happened to have lost their jobs during the
Many potential cardholders have sold the homes that were
dragging down their finances or found new jobs, but their credit
scores remain stuck in time, adds LexisNexis's Tewari. (It takes at
least seven years for a negative mark to fall off someone's credit
"Fifteen million consumers had their credit scores [negatively]
affected as a result of the recession," says Tewari. "It's been
five years now ... many of them have recovered and moved past those
credit difficulties, but their traditional credit score doesn't
Experts say that most credit card providers, including the largest
issuers, are either using nontraditional data already or are
actively examining it.
"All the issuers out there are looking at better ways of making
decisions and lending," says Tewari.
That's especially true now that, per the
Credit CARD Act of 2009
, issuers can't increase cardholders' interest rates without giving
them 45 days' advance notice, says Tewari. "So that upfront
decision is even more important," he says.
Not everyone, however, is convinced that incorporating
nontraditional data is the answer.
"From our perspective, the challenge is the comprehensiveness of
the data collection," says Dave Bowen, senior vice president at
KeyBank, which is actively exploring alternative data, but
currently doesn't use it. "With things like debt instruments,
loans, all banks, all credit unions, all finance companies, we're
all reporting that very consistently, very thoroughly." So the
details the big three credit bureaus, Experian, Equifax and
TransUnion, collect are more dependable, he says.
Alternative credit score providers, by contrast, often collect
much-less-consistent information, such as rental payment history or
utility payments, which aren't consistently reported by landlords
and utility companies. For example, "there are tens of thousands of
small landlords who aren't going to [consistently report their
tenants' payment data]," says Bowen.
Consumer advocates also worry that some alternative information
may not take into account complex circumstances and, as a result,
may actually harm people more than it helps them.
"More data is not always necessarily better data," says Chi Chi
Wu, a staff lawyer with the National Consumer Law Center, who has
testified before Congress about alternative credit reporting.
Sometimes renters, for example, will find that the only way to
get a landlord to resolve a legitimate dispute is to legally
withhold rent. However, that could seriously harm the renter's
credit history if it's reported as a missed payment, she says.
Low-income consumers may also struggle to pay their utilities on
time when the weather turns extreme; but if the late payments are
reported, their credit may be unintentionally damaged by a service
they can't opt out of, says Wu.
"Utilities are different. It's not like a credit card where you
have a choice," says Wu. "Everybody needs heat and light."
Dozens of agencies collect consumer information
In a list intended for consumers, the Consumer Financial Protection
Bureau (CFPB) cites 39 consumer reporting agencies that collect
alternative data, but admits the list isn't exhaustive.
Most consumer reporting companies specialize in a specific type
of information mining. For example, LexisNexis RiskView collects
mostly public records information, including insights into your age
and education, how often you move, whether you hold some kind of
professional license and what kind of home you live in.
"Any data that's available through a courthouse, for example,
bankruptcy data or criminal data, or data that's available from the
county ... all that stuff is public information," says LexisNexis's
Big three credit reporting company Experian collects data on
rental payments, but only includes positive rental information on
credit reports. Clarity Services specializes in reporting your
payday loan and check cashing history, among other financial
activities, and ID Analytics pulls together the identifying
information you use when applying for other loans, such as your
name, address and phone number.
Some companies even collect social media data, but many experts
are doubtful that information will become widely used for credit
scores that are crunched by a computer rather than by hand. "From
an individual perspective, it's really hard to gather any tangible
meaning" from social media, says Zoot Enterprise's Johnson.
"Computers just don't get context very well."
Who are these guys? It's not clear
It's unclear how many of the consumer reporting companies listed by
the CFPB are selling reports or scores specifically to credit card
issuers -- or who else may be selling this kind of data.
However, consumer advocates say that the dearth of
comprehensive, publicly available information about who these
companies are and what kind of role they play in credit decisions
is a problem for consumers.
"A lot of times people don't even know what these companies
are," says Linda Sherry, a spokeswoman for the nonprofit consumer
rights group Consumer Action.
Fair Credit Reporting Act
, consumers have a right to request a free copy of their
alternative reports. However, some companies make it so difficult
to do so that the CFPB recently sent them a stern warning. Others
won't disclose the information being reported until a consumer has
received an adverse action notice after they've been rejected for
That, too, is problematic, say consumer advocates -- especially
since errors on a consumer's report could carry such hefty
"Any time data about consumers is used and they have no way to
correct it or ensure it's accurate, that's unfair to consumers,"
says Consumer Action's Sherry.
Consumers can request a free annual report by contacting the
company directly and asking for their file disclosure. However,
each company requires a different process for disclosing
information, warn consumer advocates. Some companies will allow
consumers to request a report online. Others require that consumers
call or mail in their request.
Issuers also look within for extra data
Third parties aren't the only sources of information that issuers
are looking to for alternative data, however. They are also
increasingly looking at the data they already own, say experts.
That's especially true when it comes to consumers with the best
credit scores. Since the recession, issuers have competed fiercely
for cardholders with pristine credit, most of whom already have a
fistful of cards.
To lure these cardholders into applying for additional credit,
many issuers are testing fresh ways to use the data they already
have to personalize offers and encourage cardholders to spend, says
Zoot Enterprise's Johnson.
"We're being asked more and more to help them use their own data
better," says Johnson. That includes analyzing what items you buy
with the cards you already own, how often you use them and what
kind of banking method you prefer.
The goal, says Johnson, is use those details to offer you a card
you're not only likely to apply for, but that you will also
"The competition is driving some really innovative practices,"
says Johnson. "These banks are having to deal with customers on a
whole new level."
For example, if you're a frequent spender with an enviable
credit score, issuers may tailor the rewards they offer you based
on the purchases you frequently make. Or they may grant you a
higher credit line or lower
based on internal information in conjunction with your traditional
and nontraditional scores.
"These guys have some very interesting data, some very good
data," says Johnson. And "they're just starting to realize the
value of it."
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