Alternative credit is an option available for borrowers with little or no credit history. Alternative credit usually is in the form of a letter from the company that holds an account that does not normally report to credit bureaus.
Examples of accounts that may qualify as alternative credit are are cellphone accounts, cable TV accounts, car insurance and even cancelled rent checks all can be used as alternative credit. However they all need to be paid on time in the last 12-24 months.
You may also here mortgage professionals refer to alternative credit such as cell phones and cable TV as Alt trade lines. This is an excellent way for someone with very little established good credit to prove their credit worthiness to a lender. It's all about building a case for yourself to the lender. Knowing how to package your information to the lender is a better portion of the mortgage broker's job.
These Alternative Credit programs are very useful for Foreign Nationals, who traditonally will not have established credit since they have just come to the United States.
Banks make a distinction between loan applicants with no credit history and those with bad credit history. Non-prime lenders are usually the only source of mortgage financing for loan borrowers with bad credit profiles, whereas home buyers with little or no consumer credit history can often get home loans with Alternative Credit features from banks. Mortgage brokers are a good source for Alternative Credit mortgage programs.
Another example of a borrower who may need to use Alternative credit would be someone who did a bankruptcy and never re-established any credit accounts. Sometimes after a bankruptcy people feel it is better to pay cash for everything and not get any more credit accounts. This is not true as it is important to re-establish your credit after the BK.
Homeowners and prospective buyers with limited credit histories or artificially reduced Fair Isaac (FICO) credit scores may now obtain alternative credit reports and scores based on the timely payments they make to landlords, utilities, telecom & cable companies and other recurring accounts which may not be included in their national credit bureau file, even child support & payday loans.
One program that was designed for limited credit depth is Fannie Mae's "My Community" program that will allow up to 100% financing. You should discuss this program with your broker to see if it is right for you.
Most lenders that allow for non traditional credit are offering very attractive rates, even at 100% LTV. You will most likely have to pay mortgage insurance, but that can usually be removed within one to three years, if you live in an area with normal appreciation.