Non-traditional credit is a category of documentation that supplements, or sometimes replaces, the need for a consumer credit report. Non-traditional credit procedures are used for people who have no credit score or minimal credit history.
Fannie Mae and Freddie Mac now accept loans from borrowers with no credit score, and this rule applies to conventional, FHA, VA and USDA Rural loans. There are many things that homebuyers can do to build their own credit profile when they have no score, or limited credit history.
Here’s how you can build your credit profile:
Gather up all your payment records for any of the following bills: rent, cable television, cell phone, insurance (car, life, or medical), child care expenses, tuition, gym memberships, private loans, and so forth. Choose debts that require steady monthly payments, and you’ll need to cover at least a 12 month history.
These types of debts do not appear on consumer credit reports, unless there is a legal action taken by the creditor. Credit cards that are issued by banks, automobile dealers, department stores, etc. will appear on your credit report.
If you pay your bills electronically, print out your email confirmations, or download statements from the creditor’s website. Ask your landlord or child care provider for a reference letter or payment summary. Gathering such documentation might help you strengthen your chances for approval if you have had credit issues in the past.
It helps to begin collecting these items before you start looking for a house, and when you meet with your mortgage lender, you’ll be a step ahead. You’ll find a lot more detailed information about credit, and all the rules for qualifying a mortgage in Housing Finance 2020.