“Reality leaves a lot to the imagination,” John Lennon reportedly once quipped. He probably wasn’t talking about consumer credit, but here we are. Of the approximate 201 million adults living in the United States, nearly a quarter (45 million) have unreliable or altogether blank credit histories. The financial lives of 45 million consumers can only be left to the imagination.
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Here’s what Richard Cordray, director of Consumer Financial Protection Bureau, has to say about the plights facing these individuals:
“[For 45 million adults], managing the ways and means of their lives usually costs more, risks more, takes longer, and does less to build their financial futures than is true for most consumers. That is simply a tragedy in a modern economy and a modern financial system like ours, and we all need to think harder about what we can do to address it.”
Disputable and disputed facts are one thing. In our information-rich age, it’s rare to come across information that’s simply missing. But rather than writing off millions of consumers, lenders and regulators are working together to look beyond credit scores and identify alternative sources of data about an individual’s financial history and creditworthiness.
Where can financial institutions look for this alternative data? Per Director Cordray:
“Certain longstanding products, such as secured credit cards, can provide part of the answer and should be actively offered to these consumers. … [A]lternative data may draw from sources such as rent or utility payments, which in general have not been traditionally defined as ‘credit.’ It may draw from electronic or other records of transactions, such as deposits, withdrawals, or account transfers. And it might include other personal information, such as the consumer’s occupation or educational attainment. Other forms of alternative data may spring from new sources that never existed before, such as the use of mobile phones or the internet.”
Who knew Lennon could have predicted the US consumer finance market in 2017?
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