Data Driven Marketing

Using Alternative Data in a K-Shaped Economy: Strategies for Lenders

Using Alternative Data in a K-Shaped Economy: Strategies for Lenders

September 10, 2024 | Olivia Voltaggio
Reading Time: 2 minutes

In the latter part of 2024, consumers are navigating a complex financial landscape. Our K-shaped economy is characterized by significant challenges and evolving conditions. Let’s delve into three key market trends impacting consumers. Then, explore how using alternative data is a key advantage for both lenders and consumers.

Current Market Trends

1. Financial strain due to inflation and rising costs

Inflation is still high, though it has eased a bit—falling short of the Federal Reserve’s 2% target.¹ This ongoing economic pressure translates into increased costs for goods and services, squeezing consumers’ budgets. 

Moreover, consumer spending is outpacing income, exacerbating financial strain. As a result, many households now in more debt while their savings rates dwindle to near-record lows.²

2. Growing consumer debt and credit challenges

Total U.S. consumer debt soared to $17.37 trillion. This underscores the burden on individuals managing loans and credit obligations.³ 

Auto loan and lease balances have increased by 3.1% this year, reflecting continued reliance on credit during economic uncertainties. At the same time, credit delinquencies are on the rise, highlighting the financial challenges faced by a significant part of the U.S. population.³

3. Evolution in credit evaluation methods

Traditional methods for assessing creditworthiness often overlook a substantial demographic: about 16 million Americans with little to no credit history, rendering them "credit invisible."⁴ To address this gap, there’s a growing recognition of the need for alternative data sources, like  rental payments and mobile phone bills. These alternative data points provide a more comprehensive view of consumers’ financial behaviors. They offer lenders enhanced insights for more accurate risk assessment. For example, because 97% of Americans own a mobile phone, their phone bills could show payment history.⁵

The current financial environment calls for a more inclusive approach to lending. Alternative data offers a solution for lenders and consumers. It enables lenders to better assess creditworthiness and expand access to financial services. It also empowers individuals to achieve their goals. Utilizing alternative data can be a win-win situation. The lending industry can become fairer, more inclusive, and better equipped to meet consumers’ changing needs. 

For more information on alternative data and strategies to close out 2024, read our ebook. Explore our Market Pulse offerings — and discover new avenues for growth with confidence.

Sources:

  1. Inflation Cooled Slightly, Offering Some Relief for Consumers and the Fed; The New York Times, 2024

  2. Market Pulse Main Street Lending Report; Equifax, 2024

  3. U.S. National Consumer Credit Trends Reports; Equifax, 2024

  4. Expanding Access to Credit with Alternative Data, Equifax, 2024

  5. Cell Phone Statistics 2024; Consumer Affairs Journal of Consumer Research, 2023

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Olivia Voltaggio

Olivia Voltaggio

Senior Content Manager, US Information Solutions

Olivia joined Equifax in 2019. She manages the Market Pulse thought leadership platform, including the webinar series and podcast. Olivia holds an Editing Certificate from the University of Chicago Graham School.