The main purpose for a credit report is to determine how likely you are to pay your obligations on time and in full, based on your past history, and paint a picture of how you use your available credit. Sometimes, suitable reports are not available from the national credit bureaus, or you may need to show through alternate means that you are able to pay your loans. There are ways to do this outside of the credit reporting agencies.
Lenders Using Alternate Credit
Most lenders use the traditional FICO score, created by the Fair Isaac Corp. as a partial, if not complete, determiner of the creditworthiness of a borrower. If you don't have a FICO score, or it is not high enough, forget about getting a loan with a large bank where the loan decision is automated. If you are using alternate credit, you should look toward small local banks or credit unions where you can walk in and speak with the person who will be making the loan decision. They will be more likely to take special circumstances into consideration, and manually underwrite a loan.
On-Time Payments
If you are looking for an FHA home loan, the bank can specifically look at rent receipts and utility payment receipts to establish how likely you are to make a mortgage payment. The bank probably will want to verify these payments with a third party, and some credit reporting agencies will perform this service for the banks if they don't do it themselves. Banks may also use paid cell phone bills and records from retail stores that offer credit to their customers as a credit reference.
Bank Accounts
A bank account can be a source of credit for a lender. If you can show bank statements covering 12 months without bounced checks, a bank may accept this as a source of good credit because you are able to manage a bank account. Also, if you have too many bounced checks, you may not be able to open a checking account because banks are keeping track of people who abuse checking accounts through Chexsystems. Regular deposits into a savings account showing balance that is consistently rising over time can also be used as a positive credit reference.
Expansion Score
Fair Isaac has also launched its expansion score. This score looks at credit references that do not routinely report to the major credit bureaus, such as payday lenders and rent-to-own stores. Fair Isaac believes that the expansion score may be able to generate an acceptable credit score to be used by lenders for the estimated 25 million Americans who do not have a FICO score, mostly immigrants and younger people. Others feel that this may just become a way to locate borrowers who are already overpaying for credit, and target them for more high-priced loans.
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