The credit scoring system requires a person have active trade lines reporting so the 3 credit bureau’s Experian, Equifax and Trans Union can produce credit scores for that person. These trade lines are usually loans or revolving credit accounts. Such as auto loans, student loans and credit cards. But there are some people out there that would like to buy a house but they do not currently have any trade lines. They do not have a auto loan, credit card or other loan that reports to the credit bureau’s. Well this is OK, because FHA loans allow something called “non-traditional” credit.
With a non-traditional credit borrower we can build a credit report for that borrower by other means. What we will do is ask the borrower for the following items:
1. Verification that rent is being paid for the last 12 months 2. Verification that utility bills are being paid on time the last 12 months (gas, electric, etc..) 3. Verification telephone service has been paid on time the last 12 months 4. Verification the cable TV bill has been paid on time the last 12 months
We will send a verification to your landlord to verify rent payments have been paid on time the last 12 months. With items 2,3 and 4, you can call up the provider of these services and ask for a letter stating that you have paid your bill on time the last 12 months. Then we will take these items to our credit services company and have them produce a “non-traditional” credit report. This will allow us to get you approved for a 3.5% down FHA home loan.
If you do not have all of the 4 above credit sources. We can also use 12 month payment verification on the following items to help produce a non-traditional credit report for you:
- Auto or medical insurance accounts
- Cell phone accounts
- Child care service
- Internet service
- Personal loans from individuals supported by cancelled checks
So if you are concerned that you won’t be able to qualify for a home loan because you lack a credit score, don’t worry, there is still a great chance you can get that loan. However to clarify, non-traditional credit as discussed will not help if you if you already have poor credit. This method is only for people who have “no” credit or insufficient credit.
Please feel free to call or email if you have any questions or would like to get a free pre-approval for a home loan.