Memo: Alternative Data and the Future of Credit Scoring

By Tamara K. Nopper

Introduction

In 2017, the Consumer Financial Protection Bureau (CFPB), issued the request for “Information Regarding Use of Alternative Data and Modeling Techniques in the Credit Process.” The CFPB sought “to learn more about current and future market developments, including existing and emerging consumer benefits and risks, and how these developments could alter the marketplace and the consumer experience.” As the request noted, “Alternative data and modeling techniques are changing the way that some financial service providers conduct business.” Broadly defined, alternative data is that which is not considered traditional data by credit bureaus. 

This Data for Progress report examines the increased interest in alternative data among a broad array of entities, including elected officials, consumer advocacy and civil rights organizations, the consumer credit industry, and the growing financial technology (fintech) sector. The following topics are examined:

  • The uncredited and the push for alternative data

  • The scope of alternative data 

  • Privacy, transparency, discrimination, and proposed public credit registry

  • The COVID-19 pandemic and proposed credit reporting moratoriums

  • Survey results: Attitudes about alternative data, credit scoring transparency, and pandemic-related moratoriums

  • Policy recommendations

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