The tougher lending environment has made it almost impossible for people with bad credit to access loans and mortgage. Despite the underlying difficulties, people without traditional credit history can still get a mortgage through instruments like alternative credit. According to PRBC, an individual’s alternative credit is built from information collated from regular expenses such as utility bills, internet, insurance, and phone service. The other expenses include student loan, rent to own payments and subscription services. The credit is referred to as alternative because it takes into account all the bill payments that traditional credit bureaus like Experian and TransUnion don’t include in their credit scoring system. The bulk of this credit reporting emanates from lending institutions.
To get your alternative credit off to a flying start, you need to have all your rental, insurance, phones service and utility bills paid on time. Besides the medical bills, it is also important to have none of your accounts in collections. It is crucial to note that this form of credit is recognized and protected by law. Case in point is ECOA, or the Equal Credit Opportunity Act that allows people seeking credit to offer lenders proof of non-traditional payment for financial consideration. Statistics indicate that close to 9,000 businesses have signed up to the PRBC credit system. Unlike the traditional credit scoring method, whose readings range from 350 to 850, the PRBC scale starts from 100 to 850. Persons with scores of 750 and above are ranked as financially responsible.
If you want to buy a home and don’t have good scores with the traditional credit ratings agencies, you might want to consider the alternative option. To get a verifiable record of your bill payments, ensure your bill payments are made by check and not cash. The reports can then be submitted to the lender for a loan consideration. The push towards alternative form of credit gained traction about a decade ago following the 2008 financial crisis. According to a 2016 Student Loan Hero report, a growing number of Americans are hesitant to acquire credit cards and other forms of debts. The report indicates the number of people under the age of 35 with credits has plummeted to levels last recorded in 1989. Although, the above scenario doesn’t in any way negate the importance of building credit using the traditional techniques, it does express some disillusionment on the part of the public.
It is important to reiterate that Alternative credit will only work for you if you are making your payments in full and on time. Once your finances are in order, you can enter the mainstream market and apply for traditional personal loans, Smartphone plans, credit cards and home loans. There are, however, a few more things you need to keep in mind when building your credit and ultimately your credit scores. First, you can get the most out of alternative credit by focusing your attention on the trade lines and doubling your efforts in obtaining more credit lines as time goes. Trade lines are an important element in building alternative form of credit. The trade lines are essentially regular account payments that may not necessarily infer to the traditional loans.
Great examples include gym membership, magazine subscription service and Smartphone bill payments. Having a good payment record for your trade lines will tell the lender that you are a responsible borrower and someone adept at managing your finances. A compiled list of payments will also make it easier for reporting agencies to track and record your reports. Although the strategy might not earn you the most favorable interest rates, it can help you sidestep the headache most applicants face when applying for loans via the traditional credit agencies like banks and mortgage institutions. You can start by applying for loans from lenders that have partnered with alternative reporting agencies. The experts will advise and match you with the most appropriate local lenders.
There are also plenty of alternative mortgage lenders willing to help individuals and businesses unable to obtain mortgage using traditional credit. According to Nerd Wallet, some of the alternative lenders that have entered the mortgage industry include marketplaces and brokers, online mortgage lenders and non banking lenders that target customer’s with imperfect credit. The entry of online mortgage lenders has made it easy for members of the public to apply and obtain home loans. Brokers, on the other hand, can help potential borrowers find the most competitive mortgage and mortgage rates in the housing market. Before the recent developments, the mortgage industry was totally dominated by key lenders. Some of these players have shied away due to the enhanced regulatory environment, low profit margins and high legal risks.
