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<p>Researchers and startups say all kinds of weird data can predict your creditworthiness. What kind of smartphone you have, who your friends are and how you answer survey questions may foretell how likely you are to pay back a loan.</p><p>Don&#8217;t expect this alternative data to displace the three-digit number most lenders use, however. Credit scores still matter &#8212; a lot.</p><p>Lenders use credit scores to decide whether you get loans and credit cards, plus the rates you pay. Scores are also used to determine which apartments you can rent, which cell phone plans you can get and, in most states, how much you pay for auto and homeowners insurance.</p><p>The central problem with credit scores is that they can&#8217;t be generated unless people actively use credit accounts. Millions of people don&#8217;t, but they still may be creditworthy. Alternative data is being used to sniff them out.</p><p><strong>What may predict your risk of default</strong></p><p>Some U.S. lenders, for example, factor in how often people change addresses, how they pay noncredit bills such as rent or cell phone plans and how they handle their bank accounts. FICO, the leading credit scoring company, has found that people who have savings, maintain higher balances in their checking accounts and don&#8217;t overdraft may be good credit risks. The company has created a new &#8220;opt in&#8221; score that would allow lenders, with consumers&#8217; permission, to factor in bank account behavior when evaluating loan applications.</p><p>In Russia, applicants can get loans based on answers to &#8220;psychometric&#8221; surveys that evaluate their verbal and arithmetical skills. Meanwhile, a study of a German e-commerce company&#8217;s transactions found people&#8217;s &#8220;digital footprints&#8221; &#8212; whether they use iPhones, have numbers in their email addresses or shop at night &#8212; can predict their risk of default. (If you&#8217;re curious, iPhone users are less likely to default than Android users, while those who have email numbers or shop late are more likely to default, according to the study.)</p><p><strong>Alternative data hasn&#8217;t displaced credit scores</strong></p><p>Not all alternative methods will pass muster with regulators and gain widespread acceptance with lenders. Social media feeds, for example, showed some early promise, but enthusiasm for that idea waned once lenders considered the regulatory hurdles.</p><p>&#8220;No bank wants to be tagged with &#8216;they denied me because of my Twitter feed&#8217; regardless of how predictive it may be,&#8221; says credit expert John Ulzheimer.</p><p>Similarly, the credit scores of people in your household and in your social circle may predict how creditworthy you are, but mainstream lenders aren&#8217;t likely to embrace scores based on other people&#8217;s behavior.</p><p>&#8220;Factors should be palatable and fair in addition to being predictive and compliant,&#8221; says Ethan Dornhelm, FICO&#8217;s vice president for scores and predictive analytics. &#8220;Saying &#8216;You&#8217;ve got the wrong friends&#8217; &#8212; it doesn&#8217;t sit well.&#8221;</p><p><strong>For now and the foreseeable future, focus on your scores</strong></p><p>Much of the research has found that alternative data works best when used in conjunction with, rather than as a replacement for, traditional credit scores. So the best way to keep your financial options open remains the same: keeping your credit scores strong. That means you should:</p><p>&#8226; <strong></strong><strong>Have </strong><strong>credit</strong>. If you&#8217;re trying to build or rebuild your scores, consider a secured card that gives you a line of credit equal to the deposit you make with the issuing bank. Other options include a credit-builder loan from a credit union or online lender or being added as an authorized user to a creditworthy person&#8217;s account.</p><p>&#8226; <strong></strong><strong>Actively use </strong><strong>credit</strong>. You don&#8217;t need to carry a balance on your credit cards, which is fortunate: credit card debt is usually expensive and almost always unwise. But regularly using credit cards helps maintain your scores. So can paying installment loans, such as student loans, car loans and mortgages.</p><p>&#8226; <strong>A</strong><strong>void</strong> using too much <strong>credit</strong>. Maxing out your credit cards or applying for too many cards in a short period can ding your scores. The less of your credit limits you use, the better, even when you pay in full every month.</p><style>
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<div class="neFile"><img class="neImage" src="https://www.timesleader.com/wp-content/uploads/2018/07/web1_f0c5d0644d02471d8f00bcd54538fdd5-f7242924f8b64ee8ab3e31b813c3f5f5-0.jpg">
<div class="neCaption">FILE - This April 2017 file photo provided by NerdWallet shows Liz Weston, a columnist for personal finance website NerdWallet.com. (NerdWallet via AP, File)</div></div><div class="metaInfo"><photo0>https://www.timesleader.com/wp-content/uploads/2018/07/web1_f0c5d0644d02471d8f00bcd54538fdd5-f7242924f8b64ee8ab3e31b813c3f5f5-0.jpg</photo0><caption0>FILE - This April 2017 file photo provided by NerdWallet shows Liz Weston, a columnist for personal finance website NerdWallet.com. (NerdWallet via AP, File)</caption0><photoCredit0></photoCredit0></div></div>
<div class="metaInfo"><bylineMeta><p>Liz Weston</p><p>Guest Columnist</p></bylineMeta></div><div class="metaInfo"><shirttailMeta><p>Liz Weston is a columnist at NerdWallet , a certified financial planner and author of &#8220;Your Credit Score.&#8221; Email: lwestonnerdwallet.com . Twitter: lizweston.</p></shirttailMeta></div>

Their view: Why traditional credit scores still matter