Background and why it matters

Lenders historically relied on credit reports and FICO-like scores. That system leaves out millions of consumers with thin or no credit files: renters who never had credit cards, recent immigrants, and younger adults. Since the 2010s, and accelerating after the 2008–2009 crisis, lenders and credit bureaus have begun incorporating alternative sources to better identify low-risk borrowers who don’t show up well in traditional records (see CFPB research on alternative data and access to credit) (CFPB).

In my 15+ years in lending, I’ve seen applicants denied despite consistent on-time payments for essentials. Nontraditional data can change underwriting outcomes by revealing those consistent behaviors.

How lenders collect and use nontraditional data

  • Sources: common inputs include rent and utility payment records, mobile-phone and cable bills, bank-transaction (cash-flow) data, income/expense patterns, subscription payments, and—less commonly—public licensing or property records. Large data aggregators and consumer-permission services (for example, Experian’s rent/utility reporting products and account-aggregation services) make it practical to include these signals (see Experian’s consumer tools) (Experian).
  • Methods: lenders either obtain standardized reports from specialty data vendors or get consumer-permissioned access to bank accounts and biller records. Machine-learning models and scorecards then combine these inputs with traditional risk factors to produce an underwriting decision or a supplemental score.
  • Use cases: alternative data are used for consumer and small-business lending, credit card prequalification, rental screening, and some mortgage or auto programs targeted at thin-file borrowers.

Real-world examples

  • Rent reporting: A borrower without credit cards can establish a positive payment pattern when rent payments are reported to bureaus or furnished to a lender. This is now a common pathway for first-time credit builders (more on rent reporting in our guide to how rent and utility reporting can improve personal credit scores).
  • Bank-transaction underwriting: Lenders underwriting short-term loans or small-business lines may analyze 90–180 days of deposit and spending activity to verify income stability and a debt-service buffer, an approach covered under alternative underwriting practices (see our article on alternative underwriting).
  • Auto-pay evidence: Consistent automatic payments for subscriptions and utilities can flag responsible payment behaviour; like other on-time habits, they’re often correlated with lower default rates (see how auto-payments shape scores).

Who benefits and who is at risk

  • Beneficiaries: People with thin or no credit files—renters, recent immigrants, younger adults, gig workers with irregular pay—are the primary beneficiaries. Alternative data can expand access and often lower interest costs for reliably performing borrowers.
  • Risks and limits: Nontraditional data can be incomplete, inconsistently reported, or biased. For example, bank-transaction signals may disadvantage those paid in cash or who use informal financial services. There are also privacy concerns when aggregating sensitive transaction histories and potential for model bias if data sources reflect structural inequities.

Practical steps consumers can take

  1. Ask lenders if they consider nontraditional data. Some lenders explicitly advertise it; others require you to opt into account-aggregation services.
  2. Report rent and utility payments where possible. Services and some landlords report rent; these records can help build a positive history (learn more in our rent-and-utility reporting article).
  3. Enroll in consumer-permission tools such as Experian Boost (or equivalent) to add on-time payments for phone and some bills to your credit file—but weigh privacy trade-offs and read each service’s data-use policy.
  4. Keep clear records (bank statements, cancelled checks, digital receipts) to produce proof when seeking manual underwriting.
  5. Monitor your files and dispute errors under the Fair Credit Reporting Act—CFPB resources explain your dispute rights.

Common mistakes and misconceptions

  • Mistake: Assuming nontraditional data will automatically improve scores. Reality: Not all lenders use these signals; the effect depends on which data are included and how underwriting models weigh them.
  • Mistake: Overlooking privacy and consent. Many alternative-data products require permission to access bank or biller data—read disclosures to know what’s shared and with whom.

FAQ (short answers)

  • What types of nontraditional data matter most? Rent and utility payment records, bank-transaction cash-flow patterns, and consistent mobile-phone or subscription payments are among the most useful in practice.
  • Can I add nontraditional data to my official credit report? Yes—some bureaus and services accept rent or utility reporting and products like Experian Boost can add certain payments. Consumers also have dispute rights under the FCRA if the information is inaccurate.

Regulatory and consumer-protection notes

Federal regulators and researchers (including the CFPB and the Federal Reserve) are actively studying alternative data to weigh consumer benefits against risks such as accuracy, discrimination, and privacy (CFPB, Federal Reserve). If lenders use nontraditional data, they must follow applicable fair-lending and reporting rules, and consumers retain dispute and notice rights.

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Author’s experience and closing note

In my lending practice I’ve seen nontraditional data convert marginal denials into approvals for creditworthy borrowers, while also surfacing cases where recorded payments masked deeper instability. Use these channels deliberately: report what you can, protect your privacy, and ask prospective lenders how they weigh alternative signals.

Professional disclaimer

This article is educational and not individualized financial advice. For personalized underwriting or credit strategy, consult a certified credit counselor or licensed lending professional.

Authoritative sources