Gary Drenik is a seasoned writer for Forbes, focusing on innovation in both large enterprises and small businesses through AI applications for consumer data. Since 2012, he has provided insights into innovative privacy-compliant predictive analytics and targeted marketing solutions.
Recent economic and regulatory changes and shifts in consumer behavior have significantly reduced lenders’ visibility of consumer credit quality. Risk managers now seek better ways to assess this risk and a growing number of data solutions can assist them.
Practitioners should know that relying only on traditional credit data gives a narrow view of consumers' credit health and limits informed decision-making. Lenders should incorporate alternative data, defined as Fair Credit Reporting Act-compliant sources not included in traditional credit scores and reports, into their risk assessments to better understand prospect, applicant and customer credit quality. Credit stress is growing in unprecedented ways as economic changes occur faster and on a larger scale than expected. According to, bankruptcy filings have strayed from their usual seasonal trends for the first time in a decade. In April 2024, filings reached their highest level since March 2020 and this trend continued through July. Additionally, many consumers are entering third-party collections for the first time, despite having no prior delinquencies on their credit reports. Financial setbacks are triggering growing caution among consumers. They are turning to different financial products to manage this stress compared to five years ago, according to Kevin King, vice president of credit risk at LexisNexis Risk Solutions, who notes a noticeable decline in demand for non-prime loans. “Consumers are now relying more on alternative financial products to manage short-term financial needs instead of traditional non-prime lending. This shift is evident in the decreased velocity of short-term loans issued by lenders and the decline in short-term loan applications per person,” King said.Leak Reveals Trump Crypto Bombshell As Bitcoin Suddenly Surges Toward $100,000 Pricefound that 51% of consumer lending institutions cite limited visibility of negative payment history as the greatest challenge with traditional credit data. For instance, many national credit card providers no longer report payment data to the bureaus. Additionally, new alternative payment methods like Buy Now, Pay Later allow consumers to secure multiple loans that often go unreported to credit agencies. As King explains: “BNPL providers enable consumers to make purchases and pay in installments, often with little or no interest, yet they typically do not report these loans to major National Consumer Reporting Agencies such as Equifax, Experian and TransUnion. This lack of reporting creates 'phantom debt,' which does not appear on traditional credit reports.”survey reveals that 11% of consumers have student loans, with a clear generational divide in debt distribution. Gen-Z and Millennials are disproportionately affected. Millennials are nearly twice as likely as Gen-X to have student loans and Gen-Z is six times more likely than Baby Boomers to carry this debt.“Lenders must closely monitor the resumption of student loan payments and their impact on credit scores, delinquencies and default rates across different consumer segments. Traditional credit reporting systems, heavily reliant on historical data, may struggle to capture these shifts in consumer behavior accurately,” said King. Changes in how medical debt and payment data are reported have transformed the credit reporting landscape. From 2018 to 2022,indicated that an estimated 22.8 million people would have at least one medical collection removed from their credit reports and collections under $500 would no longer appear. Since 2020,issuers have stopped sharing payment data with credit bureaus. Updates to Regulation F restricted when debt collectors can report information to consumer agencies and some collection agencies have ceased reporting paid delinquencies to credit bureaus entirely. The practice of tradeline deletion once a debt is sold or settled further complicates accurate credit risk assessment. The predictive power of traditional credit data is waning, though it remains vital to underwriting strategies. This decline often makes traditional data insufficient for effective origination. The growing popularity of BNPL services accelerates this trend with BNPL transactionssurvey, 28.5% of respondents reported using BNPL services regularly or occasionally. Gen-Z and Millennials are more likely to rely on BNPL, yet their credit histories often fail to fully capture their debt obligations, leading to an incomplete and sometimes misleading view of their financial health. Conversely, older generations such as Gen-X and Baby Boomers are less inclined to use BNPL and often have more traditional credit histories, offering a clearer view of their debt and repayment behavior. This creates a growing discrepancy in how traditional credit scoring systems evaluate different generations, complicating lenders' efforts to accurately assess borrowers.To regain visibility into consumer credit risk, lenders should leverage alternative data, which offers a more comprehensive understanding of consumers' current financial health and helps bridge the gaps in traditional credit scores and data. According to, 60% of respondents felt less confident making lending decisions based solely on traditional credit data. Conversely, 86% of lenders reported increased confidence in using alternative credit data for lending decisions compared to the previous year. Alternative data provides lenders with a comprehensive view of both established consumers and those with limited or no credit histories, allowing them to identify individuals who may be overlooked by traditional credit scoring. This approach enables lenders to approve more consumers at better rates, expanding access to financing. As traditional credit data becomes less reliable, alternative data stands out as the solution for the future of credit risk assessment.Our community is about connecting people through open and thoughtful conversations. We want our readers to share their views and exchange ideas and facts in a safe space.Insults, profanity, incoherent, obscene or inflammatory language or threats of any kindContinuous attempts to re-post comments that have been previously moderated/rejectedAttempts or tactics that put the site security at riskProtect your community.
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