All About Alternative Credit

What is Alternative Credit?

Any payment account that is not found in a traditional credit bureau report is considered “non-traditional” or “alternative” credit. We use the word Alternative. Typically, property managers and landlords, utility companies, cell phone providers, insurance companies and many other service providers, as well as many small finance companies, do not report their customer’s account information and payment history to the national credit bureaus; nor are they obligated to do so. Reporting credit and payment information is a totally voluntary option. However, just because it is not reported does not mean it is not valuable or useful.

Federal Law recognizes the importance of alternative credit information. Everyone is entitled under the Equal Credit Opportunity Act (ECOA) to present any alternative credit accounts for which they are responsible to anyone who requires a credit check when their creditworthiness is being assessed. Consumers can and should use this law to their advantage.

There are very few guidelines surrounding the use of alternative credit accounts related to consumer lending. For the purpose of federally backed mortgage loans, the Federal Housing Administration (FHA), Fannie Mae (FNMA), and Freddie Mac (FNMC) enacted policies for the verification and use of alternative credit, and established a tier system for the various types of alternative credit accounts based on their significance as credit references. Ranked in order of significance, account types are categorized into four separate tiers, with Tier I credit accounts weighted more heavily than Tier II, which are in turn weighted more heavily than Tier III, etc. These guidelines form the basis for the AMP Credit Rating model, and the eCredable verification policies.

The list below outlines the Four Tiers of accounts that comprise the AMP Credit Rating and the types of accounts that make up each tier.

Tier I credit includes payments for:

  • Housing - Rental
  • Housing - Mortgage
  • Housing - Rent to own

Tier II credit includes payments for:

  • Electric Utility
  • Gas Utility
  • Water Utility
  • Phone – Mobile or Land
  • Cable/Internet/Television service
  • Revolving accounts/Credit cards
  • Automobile/vehicle loan
  • Secured loan
  • Unsecured or Payday loan

Tier III credit includes payments for:

  • All insurance types with payments made at least quarterly (excluding payroll deductions)

Tier IV credit includes payments for:

  • Leases for furniture, appliances or durable goods
  • Layaway payments made monthly
  • Condominium/Homeowner association dues
  • Timeshare maintenance
  • Gym and physical therapy payment plans
  • Childcare and day care with regularly scheduled payments
  • Parking with regularly scheduled payments
  • Self-storage
  • Subscriptions and memberships with regularly scheduled payments

Why is alternative credit important?

Given today’s economic climate, there is increasing support for the use of "alternative" credit.  There are 50 million Americans who don’t have enough “traditional” credit history with the three major credit bureaus to get a credit score.  This group includes young adults with little or no access to traditional credit, recently divorced or widowed individuals with little or no credit in their own names, newly arrived immigrants, individuals with previous bankruptcies, and individuals who consciously shun the traditional banking system.

The financial history of regular bill payments such as rent, utilities, insurance and any other recurring payment obligations (i.e. payments for obligations other than “debt”) is generally referred to as “alternative”, “non-traditional” or “secondary” credit.  In reality, these bill payment obligations are primary for most households.  They are classified as alternative because the payment history information is not reported to the major credit bureaus.

Regardless of whether you have no credit file, a thin credit file, or a credit file with negative credit information, your alternative credit information can help you in any of these situations. If you have no credit file, or a thin credit file with no score, and you make on-time monthly payments, your alternative credit file may help you establish a payment history with any potential creditor.  If you your credit file contains negative payment information, your alternative credit file may help to offset those negative marks by showing the creditor a more complete picture of your credit history.  Even if you have good credit, but only one or two accounts, your alternative credit file may further boost your overall credit profile by demonstrating across many more credit accounts how conscientious you are about making timely payments.

What does the LAW say about alternative credit information?

Section 202.6(b)(6) of the Equal Credit Opportunity Act (ECOA) is a Federal law, enforced by the Federal Trade Commission (FTC) that states:

To the extent that a creditor considers credit history in evaluating the creditworthiness of similarly qualified applicants for a similar type and amount of credit, in evaluating an applicant's creditworthiness a creditor shall consider: (i)  The credit history, when available, of accounts designated as accounts that the applicant and the applicant's spouse are permitted to use or for which both are contractually liable; (ii)  On the applicant's request, any information the applicant may present that tends to indicate that the credit history being considered by the creditor does not accurately reflect the applicant's creditworthiness; and (iii)  On the applicant's request, the credit history, when available, of any account reported in the name of the applicant's spouse or former spouse that the applicant can demonstrate accurately reflects the applicant's creditworthiness.  

The LAW in effect says creditors considering your credit in evaluating your creditworthiness, MUST take into consideration any payment accounts for which you are responsible, if you present the information to them. 

How can a eCredable AMP Credit Report™ help me?

If you have little or no traditional credit and no credit score, an AMP Credit Report and AMP Credit Rating may help you show any potential creditor that you have a verified history of on time payments of your monthly financial obligations, from sources that are considered mainstream throughout the financial industry. 

If your credit file could use a little help, your AMP Credit Report may help to offset negative history, showing the creditor a more complete picture of your credit history by highlighting your verified history of on-time payments, especially if your monthly financial obligations are from sources that are considered mainstream throughout the financial industry.  Especially in today’s economic climate, bad things happen to good people.  By using your alternative credit file to show a more complete credit profile, your creditor may better understand the circumstances which created that bad mark against your traditional credit file.

Your AMP Credit Report is laid out in an industry standard format that creditors are familiar with.  It can be used by the creditor in underwriting and accessed electronically for credit scoring or other purposes. You are entitled to use your AMP Credit Report as a stand alone report, or as a supplement to the bill payments contained in your Equifax, Experian, and TransUnion credit reports; and by law, a creditor MUST consider your AMP Credit Report on your request.

Do all creditors use alternative credit information?

By law, all creditors MUST consider alternative credit information if they use a credit report in assessing the creditworthiness of their applicants and customers.  Many major entities such Fannie Mae, Freddie Mac and FHA readily recognize the importance of alternative credit information.  Many Credit Unions also readily recognize alternative credit information as a valuable asset in assessing their member’s creditworthiness.  No doubt, other major financial institutions and service providers weigh alternative credit information in their lending process.  Although a creditor is not required to grant you the loan, it is important to know that BY LAW (ECOA Section 202.6(b)(6)), and upon your request, ALL creditors using credit information to evaluate their applicants MUST take information contained in your AMP Credit Report into consideration.  

How can I improve the chances that my alternative credit will be considered? 

First, you must take care that you always make your bill payments on time.  It is important that you can show as much positive payment history as possible when building an alternative credit report. 

Second, present your alternative credit to potential creditors in a manner that that makes it easy for them to consider.  Building an alternative credit report in a format that the creditor can use, verified by a source that creditors know and trust, can help your creditor streamline their alternative credit verification process.  Your AMP Credit Report will provide a creditor with on-line access (with your permission)  to your alternative bill payment history, verified by a source that is well known and established in the credit reporting and verification industry, and presented in a format that the creditor is used to working with every day.  AMP Credit Report verifications are conducted by one of the premier credit reporting and verification companies in the country.  eCredable’s verification provider is a member of the National Consumer Reporting Association (NCRA), their verification staff is FCRA certified, and all investigations and verifications meet or exceed the guidelines of Fannie Mae, Freddie Mac, HUD and FHA.

Third, time your verification and AMP Credit Report order with your credit event.  Just like with traditional credit, creditors will usually want to see the most current picture of your credit possible.  You should place your verification order so that your AMP Credit Report is completed within as few days as possible of presenting it to your creditor.

What steps should I take in building alternative credit profile with eCredable?

The goal in building alternative credit is to develop a credit history that 1) does not require going into debt to build it, 2) shows that you pay your monthly and regular financial obligations on time, and 3) can be used under ECOA Section 202.6(b)(6). 

1.     Establish a secure eCredable on-line “self-storage” account that you control.  You will be able to view and update your account at any time. 

2.     Add your bill payment accounts (not reported to Equifax, TransUnion or Experian) to your file. The more accounts that you have and the longer you have paid them on time, the better your profile may look to a prospective creditor, and the higher your rating could be. 

3.     It could be important that your account information is independently verified by a third-party that is trusted by creditors, such as a member of the National Consumer Reporting Association.

4.     Request a verification of the information in your file within the 30 days prior to using it, such as when applying for an apartment or mortgage, credit, utility, phone, or cable service, insurance, or employment.  Note: A creditor may view your AMP Credit Report as “current” for 30 days.  You should order your verifications and AMP Credit Report with this time frame in mind.

5.     You may then download and print your AMP Credit Report, or give ANYONE you choose secure electronic access to the report via a secure password free of charge.

6.    Update your file before presenting it to a new creditor or service provider if your verifications are older than 45 days.
 

What if a creditor refuses to accept my alternative credit information?

The LAW is on your side.  Section 202.6 (b)(6) of the Equal Credit Opportunity Act (ECOA) states that anyone must consider your alternative credit if they use a credit report in determining their applicant’s creditworthiness.  ECOA Sections 202.16(b) and 706(a) and (b) provide for civil penalties up to $10,000 in individual actions, and the lesser of $500,000, or 1 percent of a creditor's net worth in class actions, for violations of ECOA.  If you ever feel as though your credit rights have been violated, you may take action and submit a complaint to the appropriate agency.

The first step is to understand the law that protects you.  

Second, inform the creditor you are aware of the law that protects you.  The creditor may find that they have made a mistake and re-evaluate their decision. 

The third step would be to contact your State Attorney General to determine if the creditor violated state laws regarding equal credit opportunity. 
The final step would be to file a complaint.  A number of federal agencies share enforcement responsibility for the ECOA. Determining which agency to contact depends on the type of financial institution you bank with.

For retail and department stores; mortgage, small loan and consumer finance companies; oil companies; public utilities; state credit unions; government lending programs; or travel and expense credit card companies are involved, contact:

The Consumer Financial Protection Bureau (CFPB)
P.O. Box 4503
Iowa City, Iowa 52244
(855) 411-CFPB (2372)
Español (855) 411-CFPB (2372)
TTY/TDD (855) 729-CFPB (2372)
Fax (855) 237-2392

Federal Trade Commission
Consumer Response Center

Washington, DC 20580
1-877-FTC-HELP (1-877-382-4357); TDD: 1-866-653-4261

The FTC generally does not intervene in individual disputes, but the information you provide may indicate a pattern of violations that the Commission would investigate.

For nationally-charted banks (National or N.A. will be part of the name):
Comptroller of the Currency
Consumer Assistance Group
1301 McKinney Street
Houston, TX 77010-9050
1-800-613-6743
www.helpwithmybank.gov

For state-chartered banks insured by the Federal Deposit Insurance Corporation, but not members of the Federal Reserve System:
Federal Deposit Insurance Corporation
Consumer Response Center
2345 Grand Boulevard
Suite 100
Kansas City, MO 64108
1-877-ASK-FDIC (1-877-275-3342)
www.fdic.gov

For federally chartered or federally-insured savings and loans:
Office of Thrift Supervision
Consumer Affairs
1700 G Street NW
Washington, DC 20552
1-800-842-6929; TTY: 800-877-8339
www.occ.treas.gov

For federally-chartered credit unions:
National Credit Union Administration
1775 Duke Street
Suite 4206
Alexandria, VA 22314-3437
1-800-755-1030
www.ncua.gov 

For state member banks of the Federal Reserve System:
Federal Reserve Consumer Help Center
P.O. Box 1200
Minneapolis, MN 55480
1-888-851-1920; TDD: 877-766-8533
www.federalreserveconsumerhelp.gov

For discrimination complaints against all kinds of creditors:
Department of Justice
Civil Rights Division
Washington, DC 20530
www.justice.gov/crt

Still Not Sure Who to Contact?
If you can’t figure out which federal agency has responsibility for the financial institution you AMP with visit www.federalreserveconsumerhelp.gov  or call 1-888-851-1920.

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