How to Leverage Alternative Data to Inform New-to-Credit Lending Decisions

Financial institutions and lenders tend to use a person’s credit history as a key factor when evaluating their creditworthiness. However, many Canadians do not have enough credit history to receive traditional credit scores. Without adequate information which would allow financial institutions to adjudicate or extend credit to them, lenders are sometimes quick to decline these applicants to limit their risk, which can stand in the way of building consumer loyalty and increasing the financial capabilities of new-to-credit consumers.

Using alternative data to score new-to-credit consumers can provide unseen insights into this consumer population. It has the potential to help minimize risk and empower lenders to guide lenders to make more informed and inclusive credit decisions.


1. Streamline Credit Decisions


By incorporating alternative data sources such as neighbourhood street-level data, historic credit inquiries, telecommunications data, and rental data, lenders can paint a more comprehensive picture of a consumer's financial behaviour and stability. With the ability to score consumers who were once deemed unscorable due to their lack of credit history, lenders can make streamlined and consistent decisions for all applicants. 


2. Foster Consumer Loyalty


When new-to-credit consumers establish their first credit account, they integrate into the Canadian credit ecosystem and can begin to build their credit history. Leveraging new and innovative scoring methods helps shed new light on these individuals, opening the financial opportunities they need to continue to build a life. 

With nearly 94% of Canadians using mobile internet*, leveraging telco data can be an excellent example of a consistent payment history not found in traditional credit reporting. Through increased financial inclusion, lenders can foster loyalty in new or young Canadians with their products by being the “first in their wallet”. 


3. Increase applicant approval rates


Scoring with alternative data can help lenders increase approval rates while providing a different outlook on the acceptable levels of risk to their business. With a greater pool of eligible borrowers and a broader perspective on new-to-credit individuals, lenders can identify potentially creditworthy individuals who might otherwise be deemed high risk. As a result, lenders can possibly extend credit to a more diverse range of applicants, increasing their approval rates and fostering financial inclusion.

For more information on serving new-to-credit customers, visit our website. You can reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn


*Source: Statista 2022 Mobile Internet Usage in Canada


This article is published by Equifax Canada Co.® 2023. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business advice. 


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