HOW TO TAKE ADVANTAGE OF ALTERNATIVE CREDIT DATA IN CREDIT UNDERWRITING

Using alternative credit data in credit underwriting can help lenders better understand a borrower’s creditworthiness, especially for those with limited or no credit history. Underwriting should include non-traditional data sources like utility payments, rental history, and online transactions. In addition, collaborating with fintech firms, data aggregators, and regulators makes it easier to use alternative credit data effectively.

The use of alternative credit data is on the rise. Two-thirds of U.S. financial leaders use alternative credit data on the latest half of new loan applications, according to a LexisNexis Risk Solutions study. More than half of these leaders reported a lending revenue increase of at least 15 percent. Here are several steps lenders can take to leverage alternative credit data effectively:

How To Take Advantage of Alternative Credit Data in Credit Underwriting
Alternative Data Source Identification	Identify non-traditional data sources such as utility payments, rental history, online transactions, and alternative lending data.
Data Aggregation and Validation	Establish connections with data providers or use third-party platforms to aggregate alternative credit data into your underwriting process. Validate alternative credit data against multiple sources and implement data quality assurance measures.
Develop Customized Credit Models	Modify or create credit scoring models incorporating alternative data alongside traditional credit information.
Risk Segmentation	Segment borrowers based on alternative credit profiles to offer tailored credit products and pricing, especially for underserved populations.
Predictive Analytics and Machine Learning	Utilize predictive analytics and machine learning to analyze alternative credit data and identify patterns for accurate credit risk assessment.
Transparency and Explainability	Communicate clearly with borrowers about using alternative credit data in the underwriting process and its impact on credit decisions.
Compliance and Regulatory Considerations	Ensure compliance with relevant regulations and implement robust data privacy measures.
Collaboration and Partnerships	Collaborate with fintech firms, data aggregators, credit bureaus, and regulators to stay updated on best practices and regulatory changes.

By following these steps, lenders can leverage alternative credit data to enhance the credit underwriting processes, expand access to credit for underserved populations, and make more informed lending decisions while managing risk effectively.

defi’s Partners for Alternative Credit Data in Credit Underwriting

defi ORIGINATIONS next-generation loan origination platform includes a complete set of system application programming interfaces (APIs) that easily incorporate external data, such as alternative credit data. In addition to system APIs, the platform includes an Integration Manager with an integration library of more than 50 pre-built out-of-the-box partner integrations.

To improve the loan origination experience for lenders, defi SOLUTIONS has partnered with alternative credit data sources, credit bureaus, and other data sources:

Alternative Credit Data

• Clarity Services
• BankruptcyWatch
• FactorTrust
• ID Analytics
• LexisNexis Risk Solutions
• PointPredictive
• TruDecision
• Zest AI

Credit Bureaus

• Experian
• Equifax
• TransUnion

Other Data Sources

• AUL Corp
• Creative Business Decisions
• GWC Warranty
• Income and Employment Verification
• The Work Number
• Digital Document Services

Compliance and Risk

• Carleton Inc.
• Open Lending
• Pagaya

defi SOLUTIONS has also partnered with reporting systems, vehicle valuation services, and other services. A list of these integration partners can be found here.