Alternative Credit Scoring

Traditional credit scores rely mainly on credit history, such as past loans and credit cards. People with little or no credit history, sometimes called credit invisible or thin-file, such as young adults, recent immigrants and people in countries with limited credit bureaus, often struggle to borrow even if they would repay reliably.

Alternative credit scoring uses other data to fill this gap. Examples include rent, utility and phone bill payments; bank account cash flow data, often accessed with the customer’s permission through open banking; and, in some markets, mobile money and e-commerce activity.

For example, a lender might approve a loan for a young person with no credit history after analysing a year of their bank transactions, showing regular income and on-time rent payments.

Alternative credit scoring can expand access to credit and improve risk assessment. However, it raises concerns about privacy, transparency and fairness. Some data may reflect or reinforce existing biases, and complex models can make it hard to explain why someone was rejected. Regulators require lenders to follow fair lending, data protection and consumer protection laws when using alternative data.