The Rise of ‘Alternative Credit Scores’ and How They Impact Your Borrowing Power

Traditional credit scores like FICO and VantageScore have long been the gatekeepers of borrowing. But they’re not perfect. Millions of people have little or no credit history, making them effectively invisible to lenders—even if they’re financially responsible.

Enter alternative credit scores: newer models that use non-traditional data to evaluate creditworthiness. These systems are opening doors for people who have been left out of the credit system for too long. This article explores what alternative credit scores are, how they work, who they benefit, and how they’re shaping the future of lending.

What Are Alternative Credit Scores?

Alternative credit scores assess a person’s ability to repay debt using data beyond traditional credit reports. Instead of just looking at loans, credit cards, and payment history, these models consider a broader financial picture.

Unlike FICO, which primarily tracks credit utilization, length of credit history, and credit inquiries, alternative models pull data from other financial behaviors. Examples of providers in this space include:

• Experian Boost: Adds utility and telecom payments to your credit report.
• UltraFICO: Includes bank account history like savings and cash flow.
• eCredable: Allows reporting of rent and mobile phone payments.
• Nova Credit: Helps immigrants use international credit data in the U.S.

These tools aim to make credit scoring more inclusive, particularly for those who’ve never had access to traditional credit-building tools.

Types of Alternative Data Used

Alternative credit models rely on a wide range of financial data:

• Utility and Telecom Payments: Regular, on-time payments for electricity, gas, and phone bills.
• Rent Payments: Monthly rent history reported through services like RentTrack or Esusu.
• Bank Account Activity: Balance levels, cash flow, and history of overdrafts.
• Subscription Payments: Consistent payments for services like Netflix or Spotify.
• Employment and Income Data: Used by some fintech platforms to determine financial stability.
• Educational Background: In some models, education level or field of study can influence scores.

This data is collected with user permission and analyzed using algorithms to generate a risk profile.

Who Benefits Most from Alternative Credit Scores?

Alternative credit scoring is especially valuable for:

• Credit invisibles: People with no credit history at all.
• Young adults and students: Those just starting their financial journeys.
• Recent immigrants: Individuals with strong financial habits outside the U.S. but no U.S. credit history.
• Gig workers and freelancers: Those with irregular income who don’t fit traditional financial molds.
• Consumers recovering from financial setbacks: People working to rebuild credit after past issues.

These groups often struggle to qualify for loans or credit cards through traditional scoring methods, even if they’re financially responsible.

How Alternative Credit Scores Impact Borrowing Power

Alternative scoring models can help unlock financial opportunities by:

• Expanding credit access: People previously denied loans may now qualify with alternative data.
• Improving interest rates: A better score means more favorable borrowing terms.
• Creating fairer assessments: Lenders get a fuller picture of an applicant’s financial habits.
• Growing the credit market: More people participating in borrowing can benefit the broader economy.

For example, someone with no credit cards but years of on-time rent and utility payments might now qualify for a credit card or personal loan thanks to these tools.

Limitations and Concerns with Alternative Credit Scoring

While promising, alternative credit scores aren’t without challenges:

• Privacy concerns: Users must share sensitive financial data for these tools to work.
• Lack of standardization: Scoring models differ across platforms and aren’t universally accepted.
• Potential inaccuracies: Errors in utility or rent reporting can affect scores.
• Limited lender adoption: Many traditional banks still rely primarily on FICO or VantageScore.
• Algorithmic bias: There’s concern that some models may inadvertently reinforce inequality or make inaccurate assumptions based on non-financial data.

Consumers should be cautious and ensure they understand what data is being used and how it impacts their score.

Traditional vs. Alternative Credit Scores: Key Comparisons

How to Boost Your Alternative Credit Score

If you want to build a strong alternative score, here’s what you can do:

• Pay your rent and utilities on time consistently.
• Use services like Experian Boost or eCredable to report payments.
• Link your bank account to platforms like UltraFICO to showcase responsible financial habits.
• Avoid overdrafts and maintain a steady balance in checking and savings accounts.
• Use budgeting tools to manage income and expenses, especially if you have a variable income.

These actions help create a positive financial profile, even if you haven’t used credit cards or loans.

The Future of Credit Scoring and Financial Inclusion

The credit industry is changing quickly, and alternative scores are at the forefront:

• AI and machine learning are enhancing risk assessment using broader data sets.
• Regulators are exploring ways to make lending more inclusive without compromising security.
• Fintech companies are driving innovation in this space with new tools and partnerships.
• Hybrid scoring models that combine traditional and alternative data are emerging.

As adoption increases, more lenders are expected to embrace these tools, helping close the gap for underserved consumers.

Conclusion

Alternative credit scores are redefining how we measure creditworthiness. By using everyday financial behaviors—like paying rent, managing a bank account, or subscribing to a service—these models provide access to credit for millions who were once left out.

While they aren’t perfect and aren’t yet accepted everywhere, they represent a big step toward financial inclusion. Understanding and using these tools wisely can improve your borrowing power and help you build a stronger financial future.