As many as 70 million adults in the United States have neither traditional credit scores nor robust credit histories with one of the three major credit bureaus. These “credit underserved” individuals represent both opportunity and risk. While they offer financial institutions and other businesses the opportunity to gain customers, they also pose a significant risk to lenders and the macro economy if credit is extended without sufficient analysis of their ability to repay. Individuals who lack credit scores are at risk, too, because access to credit is increasingly important in the modern economy.

In recent years, several companies have designed new strategies to assess creditworthiness outside the confines of traditional credit trade lines. These innovations rely on collecting and analyzing alternative or nontraditional data, such as rental and bill payment history, insurance payments, debit-card use, and public records. In many cases, these alternative credit reporting and scoring products are based on aggregating large public and proprietary sources of data that traditional scoring methodologies don’t tap.

As confirmed by previous CFSI research, there is considerable interest in these new credit-scoring products. But before widespread adoption can occur, an important question must be answered: what is the proof of their predictive and economic value?