How Credit Scores are Changing Forever and What That Means for Women

Sign in to save article

Worried about your credit this year? You’re not alone. Roughly 44% of Americans, or 146.3 million people to be precise, are looking to boost their credit scores in 2022. But if you’re a part of the 26 million considered to be credit invisible, you have little chance of making any serious impact.

Underreported credit scores are a rampant issue in modern America, preventing 63 million U.S. adults from taking out loans, buying a house, or paying for unexpected emergencies. And that’s not all: Consumers with thin files of credit invisibility pay higher interest rates, higher premiums, and remain in a cycle of debt that dramatically impacts their quality of life.

The traditional method of credit scoring simply doesn’t work. And for 92-plus million Americans with little to no credit history, this is more obvious than ever. So how are women disproportionately targeted, and how is the industry taking a stand? In two words, alternative data.

Women Are Woefully Underbanked — and Underscored

“Underbanked” and “unbanked” populations refer to people with limited access to financial institutions. Underbanked persons are unable to access alternative services from public finance companies, while unbanked populations have little to no access to any form of bank. Unbanked populations are typically female and account for 10% of the U.S. population

Many other factors contribute to women being underbanked, notably including:

  • Being young

  • Recent immigrations

  • Being African American or Hispanic

  • Recently widowed or divorced

Women have an average credit score of 621, nine points less than the male average of 630. Even over time and accounting for age, women never meet or surpass the male average. They do, however, carry less debt, although their credit limits are often much lower.

As you might imagine, combining underbanked populations with low credit scores may lead to total financial disaster. Persons with subprime credit often suffer from:

It’s clear that credit scores impact women far more seriously than most people realize. But what if credit bureaus found a way to score 90% of the people who are unable to procure traditional credit?

Enter the magic of alternative data.

How Credit Scores Are Changing Forever

Credit companies may have been slow to the punch, but they certainly aren’t blind. Providers like Equifax were starting to notice the huge disparity between scored and unscored populations. Traditional credit scoring does not reflect the full picture of a person’s creditworthiness, meaning an overhaul was in order. And at the very end of 2021, we finally started to see some results.

Alternative data is the process of using bank transactions, utility bills, and rental payments to calculate the true value of a person’s creditworthiness. Combining consumer-consented data with additional insights, Equifax and other credit companies are boosting scores by an average of 57 points

So what does that mean for us?

  • Better opportunities for low-income households and families of color

  • Additional wealth-building and savings opportunities

  • A more inclusive credit scoring system for all

Using alternative data, more than 7.5 million U.S. consumers could move from unscorable or subprime into prime or near-prime credit scores. Debt-to-income ratios can be reconsidered with better insights, unlocking access to better interest rates, lower premiums, and more affordable living expenses. 

Beyond the United States, alternative data is starting to make waves in traditionally underserved populations. More than 8.5 million Latin Americans gained access to credit for the first time. Unscorable populations have been cut by 50% worldwide, promoting accessibility everywhere.

Alternative data is not just a minor change to a previous system; it’s changing the world in tangible, powerful ways.

Where to Check Your Credit Scores

No matter who you are, it’s a good idea to keep a finger on the pulse of your credit score. As we head into the end of Q1, here’s how you can check your credit score for free.

  • You can request a free credit report from three separate bureaus (Equifax, Experian, and TransUnion) once per year.

  • Visit AnnualCreditReport.com to request a credit report, or call them directly at 1-877-322-8228.

  • FOR COVID-19: AnnualCreditReport.com is offering free credit report access until April 2022.

While women have traditionally held disproportionately low credit scores, a future is coming where everyone will be scored, served, and treated fairly. In time, the value of alternative data will become ubiquitous — both in credit scoring and beyond.

Tags: Personal Finance, Budgeting

Sign in to save article
Share

Written By

Meagan Shelley

Meagan is a professional writer in VA who specializes in content marketing. See Full Bio

CircleAround is owned by One GS Media, a subsidiary of Girl Scouts of the USA, and we make financial distributions to benefit the next generation of Girl Scouts. We strive to make the world a better place by supporting each other today and emboldening the women leaders of tomorrow.

Love this article?

Sign up for the newsletter to get the best of CircleAround delivered right to your inbox.

Welcome
to our circle.

We're women, just like you, sharing our struggles and our triumphs to make connections and build a community.

We also make financial distributions to benefit the next generation of Girl Scouts.

About Us