A new Brookings Institution study shows that an increasing number
of lenders fail to consider alternative data when calculating credit
scores. As a result, the report warns, they essentially ignore a potentially
profitable niche serving those who lack traditional credit histories.
The paper urges lenders to do more by using such unconventional
data as utilities and telecommunications bills. Alyssa Lee, acting
director of Brookings’ Urban Market Initiative, cites government
regulation and consumer education as obstacles to widespread
acceptance of alternative scoring data; although some observers
caution against using non-traditional data to draw vulnerable borrowers
into high-cost loans. “This is not about enabling people to overextend
themselves,” says Political and Economic Research Council President
Michael Turner, who says the additional information allows lenders to
“distinguish between high and low risk and then match the credit
offer with creditworthiness.”
Source: American Banker (01/11/07) P. 4; Klobucher, Derek
© Copyright 2007 INFORMATION, INC. Bethesda, MD
Leave a Reply