If you have a so-so credit record, or no credit record at all, the good news is that you're not alone. There are around 35 million to 50 million of you by some estimates. The bad news is that you'll likely find it very expensive -- or impossible -- to secure a mortgage in the usual way, which involves lenders checking your credit score from the main credit bureaus. If they like what they see, they'll offer you a decent deal. If not, you may have to pay outrageous interest to buy your dream home. And this situation is likely to happen even if you've paid your bills on time -- bills that the main credit bureaus don't consider.
Fortunately, though, there's more good news on the horizon. As financial columnist Ken Harney recently reported, our friends in Congress have been looking into ways that lenders may be able to use "alternative data" to qualify borrowers with short or poor credit histories. Here are some of the available or emerging alternatives:
- Utility payments. Credit bureaus often don't consider these, but perhaps they should. Most people, after all, make utility payments. Harney pointed out that these industries (gas, water, electricity, cable TV, etc.) are fairly concentrated, so not too many companies would need to be monitored. One interesting downside is that some of these utilities offer protections or benefits to low-income customers or delinquent payers. Thus, credit records might be adversely affected by those who take advantage of the protections.
Fair Isaac Corp.
(NYSE:FIC), which introduced the FICO score that many lenders check before lending you money, is now offering a nontraditional-credit-based "Expansion Score." This score is based on data from payday lenders, rent-to-buy arrangements, rental histories, and more. It "provides lenders predictive scores on eight out of 10 no-file or thin-file applicants who otherwise would be denied a loan or charged high rates."
- There's even a new credit bureau on the block -- PRBC, for "Pay Rent, Build Credit.". It focuses on non-traditional sources for credit data, such as rental payment histories, student loans, and child-support payments.
If you're in the market for a new home and you have less than glowing credit, look into these possibilities. You can learn more about buying, selling, and maintaining a home by visiting our Home Center, which features money-saving tips and special mortgage rates.
Here are a bunch of other facts about mortgages and home-buying that you might not know:
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.