17-07-2025
Lenders' Cure In The Customer Lifecycle
Credit Score Data
As a series of compounding pressures challenge lenders heading into the back half of 2025, risk managers are becoming increasingly aware that they're attempting to meet lending goals using credit data which is gradually declining in coverage and predictive strength.
'To stay competitive, lenders need to incorporate a broader set of alternative data into their risk assessment process to fill the gaps in traditional credit data,' Kevin King, vice president of credit risk at LexisNexis Risk Solutions, told me in an interview.
'According to our research, traditional methods fail to evaluate over 25% of today's consumer credit applicants. This creates a tremendous opportunity for lenders who are willing and able to further refine their decision strategies,' he added.
Industry Analyst firm Datos Insights found that compared to a year ago, lenders are now 59% less confident in their ability to compete when making consumer lending decisions based on traditional credit data alone. This decline in confidence reflects the growing visibility gaps created by regulatory changes, increased use of non-reported financial products and shifts in credit reporting practices.
A key challenge has emerged – the limited view of true consumer credit risk. This gap is further complicated by credit invisible consumers (those lacking a traditional credit file), limited access to alternative information (data sources that can enhance risk models) and rising fraud rates. Without insights into negative payment history, delinquency data and consumer population information, lenders risk falling behind in a fast-changing market.
To date, 2025 has proven to be a year of unexpectedly heavy challenges for consumers' credit stability. Improved economic conditions have yet to materialize, while resumed student loan obligations add significant pressure on tens of millions of borrowers. This has coincided with a continuing evolution in consumer credit preferences, as the popularity of Buy-Now-Pay-Later (BNPL) loans has deepened, if not significantly broadened, in recent years and is largely untraceable through credit reporting data.
A recent Prosper Insights & Analytics survey underscores some of these consumer financial pressures – with roughly a third of responding consumers across all age segments saying they planned to reduce spending in the next three months.
Prosper - Personal Financial Plans
The same survey saw consumers state that over half of their planned use of credit products would focus on life essentials like food, shelter, and medical bills, with discretionary spending on items like travel and entertainment making up a far smaller portion of expected spending.
Prosper - Contributes Most To Credit Card Debt
As ever, competitive pressures continue to weigh on risk managers – with bookings, profitability and loss goals only growing despite an increasingly crowded market of financial institutions, fintechs and BNPL players vying to meet consumer credit needs.
Against the backdrop of shifting consumer behaviors and pressures, growing portfolio size and profitability have been further complicated by the declining coverage and predictive strength of traditional credit data. This well-documented issue still requires the need for lenders to look at the tradeline credit data leveraged in credit scores and reports risk managers have used for decades but notably expands the need to build upon those data sources with alternative credit data.
For the past 15 years, many lenders have thought of alternative credit data strictly through the lens of financial inclusion – a use case where established data sources continue to deliver significant value. But evolutions in alternative data solutions, particularly those that aggregate a broad set of consumer insights spanning from improved views into short and long-term credit signals, have allowed risk managers to recapture much of the signal that has been lost from traditional credit data when evaluating consumers with established credit profiles.
'LexisNexis Risk Solutions' Global Consumer Lending Confidence Report revealed that compared to a year ago, 88% of US lenders are more confident in using alternative credit data. This shift underscores the industry's recognition that conventional data alone doesn't meet the demands of today's market,' says King.
Alternative credit data helps close visibility gaps by providing lenders with a more holistic view of consumer credit health. It includes life event indicators such as professional licenses, asset ownership and public records, as well as credit-seeking behavior from online and short-term lending sources. In some cases, it also captures digital activity, offering insight into financial intent where traditional indicators fall short.
Viewed through the eyes of lenders looking to meet portfolio targets over the next 36 months, the ability of alternative credit data to provide reliable, value-added insights on the majority of consumers – and to do so across the entire customer journey – is essential. Once seen primarily as a tool for promoting financial inclusion, modern alternative credit data now enhances decision-making for consumers with both limited and established credit histories.
Equally important to help lenders meet today's challenges is alternative credit data's expansion across all stages of the customer lifecycle. Once strictly viewed as a tool for underwriting, the most mature solutions now deliver consistent, actionable insights into consumer behaviors that traditional credit reports often miss, from customer acquisition and onboarding to account management and collections.
Finally, alternative credit data has emerged in 2025 as a highly effective tool in combatting credit abuse – often referred to as first-party fraud – now the leading global fraud type according to the latest Cybercrime Report. This challenge, characterized by consumers who provide their true identity information but fully intend on defaulting when they apply for new accounts, has been a large and expanding gap in risk defenses for over a decade. Now, powerful new alternative credit insights, which offer lenders both the ability to identify and automatically decline high-risk applicants, are providing critical protection against first-party fraud.
The world of alternative credit data continues to evolve and exciting new insights such as cash flow data speak to its long-term potential. Yet, lenders would be wise not to overlook their ability to serve as a lighthouse in navigating the foggy risk landscapes of 2025 and 2026.
