Leverage “alternative data” that traditional banks ignore.
Anyone who has ever applied for a credit card and been rejected knows the main question that comes to mind is: “Why?” The usual answer is the lack of a credit score, though building one is difficult. Complicating matters, the financial system is paradoxical: it focuses on your credit card or loan payments to create a score, but if you can’t get a card or a loan, you can’t build a credit score.
The reason for this paradox is that mainstream credit lenders tend to focus more on your income level or employment status than whether you pay your utility bills on time. This is how credit risk models work globally, and it comes with downsides that affect rich and poor countries alike. In the United States, 63 million people—1 in every 5 Americans—
, which means they either don’t have a bank account or have limited access to financial services, according to the Federal Reserve., as well as many immigrants who can’t transfer their credit score from their home country to a new one, leaving them at a greater disadvantage to finance big goals like education or acquiring property.
Finding a solution to this problem has opened the door for alternative services that seek to bridge the gap between what banks think about your ability to repay them—known as your credit risk profile—and your actual ability to do so, which is usually underrated. But it can be hard to know which alternatives are legitimate and how they work. We’ve gathered three in this guide that we hope will help you get the extra notch you need to be fully banked.
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