“Alternative data” is often promoted as a solution to credit invisibility. The term encompasses many different types of data, used in many different ways – examples range from monthly payment obligations like rent and cell phone bills to social media data. The CFPB has defined alternative data as information not in the traditional credit reports provided by the Big Three credit bureaus (Equifax, Experian, and TransUnion).
Some types of alternative data and approaches to using it are helpful or promising, but others are harmful or pose risks. As with so many aspects of credit and financial services, “the devil is in the details.”