That’s where alternative data sources come in. By tapping into consumer-permissioned tools like Verification of Assets (VOA), credit unions can review account activity across institutions, confirm recurring direct deposits and see how members manage their day-to-day finances. This is especially useful when a member holds accounts outside the credit union or has income deposits coming from both a primary and side job.

Alternative data sources can also be helpful to members with thin credit files or limited traditional employment history. For instance, records of on-time utility payments, internet bills, or mobile service can show a pattern of responsibility and stability. These insights may not show up in a credit report, but they help credit unions assess willingness and ability to repay.

For a deeper view of income, credit unions can also request tax transcripts directly from the IRS. By using IRS Form 4506-C or the newer 8821 process, credit unions can validate earnings over several years and verify income for self-employed members or those with variable income. The 8821 process allows members to authorize data release in near real time, helping underwriters quickly assess income without relying on borrower-supplied documents.

Following the Patterns

Consistency matters when evaluating someone’s ability to repay a loan. But for members without predictable paychecks, that’s a challenge. This is where IRS transcripts help fill the gaps. Tools like the 4506-C and the 8821 process give credit unions access to verified income data across multiple years, showing what a member actually earns – not just what’s on a recent deposit slip.

The 4506-C lets lenders request official tax transcripts up to four years back, while the 8821 process takes it further by using a digital platform to release tax records nearly instantly after the member provides consent. Both methods provide direct-source data that doesn’t rely on borrower-supplied documents.

These transcripts help lenders identify income trends and patterns. Underwriters can see whether the member’s earnings are rising, falling or holding steady. They can also get a better view of how different income types – self-employment, contract work, rental income – contribute to the member’s financial picture. That insight makes it easier and faster to accurately match members with the right financing.

This approach also helps with compliance. Using verified data supports the rules around repayment analysis and leaves a clear record in the file. For credit unions, it’s a way to meet regulatory standards and move faster at the same time.

Making Math Easier

Calculating income should be simple, but it rarely is – especially when members don’t bring in the same income amounts each month. For borrowers with non-W-2 income, the traditional process often requires sorting through tax documents, bank statements and employment records, then interpreting what’s real, what’s recurring and what can be used to qualify the member. To make matters even more challenging, different underwriters may arrive at different answers based on the same set of documents, which is a problem for any credit union trying to deliver consistent results at scale.

Technology is reshaping this process. Several innovative verification platforms now include built-in income calculation engines that standardize how data is reviewed and interpreted. These tools pull verified information directly from the IRS or a verified employment source and apply consistent logic to calculate monthly or annual income. For credit unions, that means fewer hours spent reviewing documents, fewer mistakes and fewer gray areas in the file.

IRS transcript data, combined with VOE records, can also help identify trends and red flags that might be missed in a manual review. By using tools that calculate income the same way every time, credit unions can improve accuracy and avoid back-and-forth later in the process.

The value of these innovations is only increasing. More fintech providers are building these tools into platforms that credit unions already use, while new GSE guidelines are beginning to reflect the shift toward tech-enabled underwriting. That includes greater use of permissioned data, automated verifications and digital income assessments for non-traditional borrowers. Credit unions that embrace these changes will be better prepared to support a modern membership – and compete with larger lenders that have already made the leap.

The Standard Is Shifting

Credit unions were built to serve people who didn’t fit the mold – and today’s workforce proves how important that mission still is. But what worked 10 years ago isn’t built for today’s economy.

With more members now earning differently, tools that verify income directly from the IRS, track employment patterns and calculate income with consistent logic give credit unions better ways to assess a member’s financial picture. These systems also help reduce time, cost and compliance risk for lenders. And today’s technology partners are making it easier for credit unions to modernize how they qualify borrowers without starting from scratch.

The faster credit unions move toward more flexible, data-driven income assessments, the better they’ll serve members – whether they’re gig workers, entrepreneurs or recovering from a layoff. It’s not about chasing the latest technology trends. It’s about creating a higher standard of care for every member who walks through the door.