Alternative Credit History To Help Qualify For A Mortgage

October 1st, 2009

Banks typically want you to have to have at least four pieces of credit. Sometimes when I pull a credit report for a first time home buyer or a younger person, I see a credit report with one credit card on it, and on occasion nothing at all. Some people only use checks, cash and debit cards to pay for things. Without a credit history comprised of at least four different pieces of credit, it may be difficult to get a loan.

Apparently banks want to see more numerous items of credit history, to feel comfortable extending a large piece of credit (like a mortgage).

However, there is a solution. Banks will allow you to build an alternative credit history. This means that we can show them a 12 month (at least, or you can show a longer history if it exists) credit history of things that normally do not show up on a credit report.

These types of things would be car insurance, rent, various utility bills, cell phone bills, etc. If you can talk to the above types of creditors, and get them to write letters as to your credit history; a bank will use this alternative credit history in considering your loan pre-approval or mortgage application.

The details that must be documented to construct an alternative credit history are:

  • Minimum of four non-traditional and/or traditional references, each currently active or active in the most recent 12 months.
  • Each reference must a have a minimum 12 month payment history, and
  • One of the four references must include a 12 month housing payment history from a previous rent.
  • No late payments can be reported, and
  • The payment schedule for any non-traditional credit reference must call for payments at regular intervals that are no longer than every three months.

The following information must be provided for each non-traditional credit reference:

  • Who received the payment
  • Type of obligation (e.g., rent, utility, etc.)
  • Date the account was opened
  • Amount of the required payment
  • Payment due date
  • 12 month payment history
  • Outstanding balance

Alternatives for documenting a non-traditional credit reference include:

  • A Letter/verification directly from the creditor and supporting documentation to show the most recent, consecutive 12 month payment history. Acceptable documentation includes a computer generated print out that shows the month to month payment activity, canceled checks, bank statements, and money order receipts
  • Rental housing payment history must indicate whether the landlord is an individual or a professional management company, and
  • All rental housing payment histories from an individual landlord must be documented by canceled checks, bank statements, or money order receipts to show the most recent, consecutive 12 months.

All of these alternatives must include:

  • Name and title of the person providing the credit reference, along with their telephone number and how that number was obtained (e.g., telephone book, reverse directly, Internet, etc.)
  • Employer/company name, and name and phone number of the individual who obtained the required information

It seems like a lot of work, but if you have not established a sufficient traditional credit history, it is the only way to have a bank consider you for a mortgage.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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