Next time you’re turned down for a loan because of a low credit score, you might find that your rejection comes with a caveat. The lender is willing to reconsider — if you just let them see inside your bank account.
Across the country, financial companies are racing to get a look at your checking account, hoping it’ll fill in the gaps left by credit scores, which only take into consideration certain debt and loan information, such as missed payments, credit card balances and limits, opened and closed accounts, bankruptcies, and collections.
In this new world of “open banking,” lenders no longer need to settle for just the data that appears on a credit report. They can now analyze all of your day-to-day transactions, your recurring payments and deposits, and the trajectory of your account balance. And they do it live — recalibrating your creditworthiness as your assets rise or fall.
Lenders, landlords, and credit bureaus insist that hoarding bank account data will help them expand access to credit. But the problem is that not everyone will benefit from turning over their bank accounts to creditors. And while open banking is optional for now — and you can opt out of live connection with your bank at any time — the technology is gaining traction, with major credit bureaus, mortgage companies, and smaller lenders embracing the trend. It isn’t hard to imagine that one day lenders will view opting out as a sign you have something to hide.
The rise of “open banking,” explained
When you apply for a loan, a lender pulls your credit report from one of the three major credit bureaus — Experian, Equifax, or TransUnion. These credit bureaus also typically sell your credit score, which is calculated by two other private companies, FICO and VantageScore, using that underlying credit bureau data. (VantageScore is jointly owned by the three credit bureaus; FICO is independent.)
It’s a complicated system. Basically, what’s important to know is that credit bureaus have immense amounts of data on you — but there are notable gaps. Credit bureaus only receive limited information from Buy Now, Pay Later companies, for instance, even though BNPL loans represent about 17 percent of all unsecured consumer debt. They often can’t track multiple income streams, if someone is a gig worker or freelancer; they also can’t see cases where workers are regularly getting wage advances. Most importantly, credit bureaus have no way of knowing how much money you have on hand.
To creditors, a checking account can therefore feel like a silver bullet. Suddenly, through your expense and deposit history, all of those hidden debts and payments become visible. Lenders will see if a borrower has thousands of dollars in wealth squared away, if they receive side income from a dog-walking app or a DJ career. Lenders particularly scrutinize your “recurring expenses,” like the size and frequency of your rent and utility payments, and your overall cash flow, said Kelly Thompson Cochran, deputy director of the research firm FinRegLab. Ashley Knight, a senior vice president at Experian, the largest credit bureau in America, told me that many lenders want to know how much money you bring in each month. “How much is it? How frequent is it? Stability of that is where lenders are looking.”
The quest to profitably lend to more Americans, including those with low credit scores, has pushed a wide swath of companies to embrace open banking. In the last three years, mortgage and auto lenders like Rocket Mortgage and Zillow have started requesting read-only access to the bank accounts of people they might otherwise reject because of low credit scores. AT&T has used bank data to make decisions about lease-to-own phone and other device installment plans, and so have credit unions like Pennsylvania’s Inspire Federal Credit Union. Some fintech companies, like the credit card issuer Petal, are basing most of their credit decisions on the data pulled from an applicant’s bank account; the lender Varo claims that 90 percent of its loans are granted or denied based on the same process.
In June, Experian announced that it was going to start selling lenders a “Cashflow Score,” based entirely on data from bank accounts. With a borrower’s permission, Experian will analyze the overall account balance, expenses, and direct deposit income across a two-year period, and then generate a score measuring their creditworthiness. (The Cashflow Score program is new, but Experian told me that 17 million users have connected their bank accounts to similar Experian programs.)
Giving a lender or a landlord an automatic view of your bank account might improve your credit score, but it is also welcoming an ominous amount of surveillance into your daily financial life.
And in September, PayPal announced that bank data was helping it decide which customers to approve for Buy Now, Pay Later loans, making it one of the highest-profile companies yet to embrace the idea that your bank account can say as much about your likelihood to repay a loan as your credit score.
Over 100 million Americans have already granted permission to one of these third parties to access their checking accounts, according to a 2023 report from the Consumer Financial Protection Bureau. Most of those connections probably involve Venmo or Cash App; only a small portion of those 100 million people have likely greenlit use of their bank account for credit decisioning. Still, while it’s hard to quantify how many lenders are giving up bank access for credit decisions, “we know it’s going up,” said Cochran.
Bank data is even beginning to filter down into credit scores. While the Cashflow Score that Experian produces is not the same as a traditional credit score, both FICO and VantageScore, the two makers of credit scores in the US, now offer scoring algorithms that incorporate bank account data. You have to opt into these services, but if you do, your daily purchases and payments will start nudging your score up or down.
The mixed bag of live bank access
For Americans with thin (or poor) credit histories, turning over your bank account could be a way of, say, making a debt that went to collections look a little less bad. “Having cash flow data that is up to the moment can be a really helpful supplement,” Cochran said. “It’s showing other parts of their finances beyond just how they repay their existing credit lines.
It’s not far-fetched: A study from the Urban Institute suggested that a little under 20 percent of people who were originally denied mortgages might have been approved if bank account data, including rental payment history, were factored into their applications.
Giving a lender or a landlord an automatic view of your bank account might improve your credit score, but it is also welcoming an ominous amount of surveillance into your daily financial life. What will happen to your credit score if your income changes — say, you lose a freelance gig — and your cash flow is suddenly reduced? How will you think differently about a big purchase if you know that a lender will be scrutinizing your overall bank balance?
Let’s say you lose a critical income stream or a freelance gig—allowing access to your bank account might actually make you look worse. “It is true that you might improve the outcome for individuals,” Raúl Carrillo, an assistant law professor at Boston College Law School, told me. But some of the claims of the industry, “like ‘we’re going to solve the racial wealth gap,’ seem pretty far-fetched to me.”
For now, lenders seem focused only on top-line data points, like monthly cash flow. Plaid, a fintech company that connects lenders to bank accounts, specifically estimates for lenders how much money you bring in (or lose) each month. But there are few hard limits on the data they can use to set interest rates or make loan decisions.
“Lenders are always looking for new sources,” Michelle Young, credit product lead at Plaid, told me. Recently, Young asked a group of customers what kind of alternative data they were most interested in for assessing creditworthiness. “They were like, ‘Everything,’” Young said. The industry is almost entirely unregulated, with the Consumer Financial Protection Bureau’s open banking rule — devised during the Biden administration, then scrapped and quickly revived during the Trump administration — now undergoing public comment. The new rule might not set any limits on the types of information that creditors can use for underwriting.
Few lenders seem to be basing loan decisions on the specific items you purchase, but they could — and, historically, they have. In 2008, American Express cut customers’ credit lines in part because of their shopping histories. Cardholders found that they had lost access to credit because, according to the credit card company, they had shopped at similar stores as people with “poor repayment history with American Express,” among other factors. Around the same time, the now-defunct credit card company CompuCredit cut credit lines when customers spent money on products it associated with credit risk, like “cash advances, marital or personal counseling, tire retreading and car repairs, pawn shops, direct marketing merchants, and certain types of entertainment.”
With live access to your bank account, your basic day-to-day behaviors could be used against you. With a lender overseeing their checking account, it isn’t hard to imagine someone skipping over an important purchase for fear it will damage their credit. For lenders, everything is fair game. “The ethos is data maximization,” Carrillo said. “The model is, collect as much data as possible and sift through it on the back end.”
