If you are among the millions of Americans who have not yet used traditional forms of credit, you may think you have to turn to expensive sub-prime lending institutions in order to borrow money. Without a history of using credit cards or loans, you won’t have a traditional credit score – which most financial institutions rely on to make lending decisions.
The fact is though, that many people without these scores are actually good credit risks – and they’ve proven this by being responsible with their household bills. To bridge the gap, credit scoring companies and credit bureaus have developed non-traditional scoring models that take into account other types of financial data. These alternative scores help credit-worthy consumers who do not have an established credit history begin borrowing – and creditors begin lending to the “credit-underserved” market.
Non-traditional credit scores can help you gain access to loans and lines of credit that have good interest rates by evaluating your existing financial relationships that do not show up on credit bureau reports.
Who offers non-traditional credit scores
Several companies have developed non-traditional scoring models, but the most commonly used is the one developed by the Fair Isaac Corporation, called the FICO Expansion score. Like the FICO score, the Expansion score ranges from 300 to 850. The higher the number, the lower the risk, and vice versa. While Fair Isaac has not made their non-traditional credit scores available to the public yet, they will answer questions about your score if you call their toll-free customer service number: 1-800-319-4433.
How non-traditional credit scores are determined
These scoring models take payment data from alternative credit sources. They may evaluate information from:
- Your landlord
- Payday loan companies
- Rent-to-own businesses
- Utility companies
When lenders will consider non-traditional credit scores
A wide variety of financial institutions are actively using the Expansion score and other similar models for loan qualification purposes. Therefore, if you know that you do not have a traditional credit score, inform the lender of your situation – a documented pattern of paying your monthly obligations means a non-traditional credit score can be accessed. Also, many mortgage companies and financial institutions have special programs for homebuyers who do not fit within conventional lending guidelines, and automatically use these alternative-scoring models. Ask your lender about these programs.
To improve your non-traditional credit score
If your bills are going to help you establish yourself in the world of credit, make sure you always pay them on time. Repay high interest obligations (such as those from payday loan companies) quickly. The finance charges can make repayment both difficult and expensive and many people fall behind.
Beginning the borrowing process can be a challenge, particularly if you don’t have a traditional credit score. However, do not feel that your only options are financial institutions that charge very high interest rates and costly fees. If you have a history of paying your bills and other obligations on time, you could be eligible for conventional loans and lines of credit with a non-traditional credit score.