What is an Alternative Data Report?

An alternative data report uses non-traditional data sources—such as mobile phone usage, social behavior, online activity, and other digital footprints—to assess an individual’s creditworthiness or financial reliability. Unlike traditional credit reports, which focus on credit history and financial transactions, alternative data provides insights into a person’s behavior, habits, and lifestyle.

Sources of Alternative Data

How Does This Help Lenders?

Access to Untapped Borrower Segments
• Thin-file or No-file Consumers: Many people, particularly in emerging markets or younger individuals, lack traditional credit history. Alternative data provides a way to assess their creditworthiness.
• Expands lending opportunities for the unbanked or underbanked, who may not have access to formal financial systems.

Enhanced Credit Scoring Models
• Provides a complementary layer to traditional credit data, offering a more holistic view of the borrower’s financial behavior.
• May reveal financial discipline and habits not captured in standard credit reports, such as timely utility payments or consistent phone usage.

Improved Risk Assessment
• Lenders can use behavioral insights to better predict the likelihood of repayment.
• For example, consistent phone bill payments and active social networks may indicate stability and reliability.

Faster Decision-Making
• Alternative data can enable real-time credit assessments using AI and machine learning, making lending faster and more efficient.

Customized Loan Products
• By understanding borrowers’ behavior, lenders can tailor loan products (e.g., microloans, lower interest rates, flexible repayment terms) to suit individual needs.

Fraud Detection
• Behavioral patterns, such as irregular location changes or unusual activity, can alert lenders to potential fraud.

Key Benefits for Lenders:

• Broader Reach: Helps tap into underserved populations.
• Reduced Defaults: By leveraging more nuanced risk assessments, lenders can lower default rates.
• Regulatory Compliance: Some regions require lenders to consider alternative credit data for fairness and inclusion.
• Cost Efficiency: Alternative data reduces reliance on costly traditional credit scoring models.

Example Use Cases:

• In developing countries, mobile phone data is used to assess credit risk for small loans to farmers or small business owners.

• Platforms like Tala and Branch use mobile data to approve loans within minutes.

• Alternative data helps assess the creditworthiness of first-time users.