Advantages of Using Alternative Credit Data to Improve Access to Homeownership

Benefits of Using Alternative Credit Data

Our recent celebration of Labor Day traditionally pays tribute to the contributions and achievements of American workers. Yet, for the millions of American workers who are credit disadvantaged they are unable to achieve the American dream of homeownership.

FinLocker and several of our business partners have been advocating for more banks, credit unions, and mortgage lenders to use alternative data to expand access to credit, primarily to assist more low-to-moderate-income Americans to achieve homeownership.

Mortgage lenders who consider alternative credit data will find it provides a competitive advantage in the predominantly purchase market over the next 18 months. A TransUnion survey of 300+ lenders revealed the advantages of using alternative data are realized fairly quickly. Nearly two in three lenders said they saw tangible benefits within the first year of using alternative data, with 66% of the lenders stating that they’ve reached more creditworthy consumers in their current markets, and 48% say they’re more competitive in the marketplace.

Fewer than 10% of property managers currently report rent payments to the credit bureaus. However, the recent FHFA decision to factor on-time rental payments into Fannie Mae’s underwriting calculations will make it easier for originators to add the most recent 12 monthly rental payments into Fannie Mae’s Desktop Underwriter. Additionally, TransUnion’s VantageScore credit-risk scoring model has long been able to use rental payments as part of the calculation of credit scores.

If you’ve got potential borrowers with a thin credit file, there are additional services that enable them to add utility payments to their credit report. FinLocker recently partnered with eCredable to offer its credit building service to consumers. Not all thin credit consumers have a poor payment history. Many younger potential homebuyers are wary of taking on debt, so this service rewards them for doing something they already did well. Using the eCredable service, consumers who start with a zero VantageScore can go to a 669 in 12 months by paying their utility bills on time for 12 months. On this page, you can see how the eCredable service can help build credit for consumers with poor payment history and a high debt-to-income ratio.  

If you’re concerned that using alternative credit can be risky, the TransUnion survey also cited that 64% of lenders had better risk assessment among unbanked consumers. Contact us if you would like your low credit score renters introduced to eCredable. Once they’re in the program, you need to do nothing more than stay connected and provide encouragement. Of course, if they were using your white-labeled FinLocker, that would be easy. Watch this online demo to see how FinLocker’s tools and resources and improve the loan eligibility of your leads and prospects.

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