Traditionally mortgage lenders require a minimum credit score, and credit history, to Approve a home loan. Depending on the loan product, minimum credit score requirements can range from 500 to 680 (never lower, but sometimes higher). If you’re an applicant who’s not a “traditional” user of credit (car loans, credit cards, etc.), you can still qualify for a mortgage through “non-traditional” credit sources, even without credit scores.

A traditional credit source is a reflection of an account’s history, compiled by credit bureaus (aggregators), and entered onto an individual’s credit report. Based on each bureau’s scoring model, each account is graded in accordance with the borrower’s payment history, and cumulatively given a single score by each bureau. 

For applicants who have no credit scores, payment histories are sought from non-traditional credit sources. A non-traditional credit source is typically a provider who offers a necessary service, but DOES NOT traditionally report the account’s performance to the credit bureaus. Consequently, to obtain a non-traditional credit history the lender cannot pull the information from a credit report, but must go directly to the service provider.  

For example, let’s assume you’re a 38 year old home loan applicant who’s never used credit before (financially, you’re off the grid and pay for everything with cash). This means you’ve never had a car loan, but odds are, you own a car. California law requires vehicle owners to have insurance. The insurance requirement became effective the day the title of the car was transferred into your name. From that day forward, to legally operate the vehicle you’ve had to continuously maintain insurance coverage, with no lapses.

If you got your first car at 18, that means you’ve maintained an automobile insurance policy for 20 consecutive years. So the lender goes the “non-traditional” route, and requests an account history directly from your insurance carrier. Though non-traditional, an account history directly from your auto insurance carrier is not just a credit reference, it tells the lender a lot more:

• You’re mature.
• You’re conscientious.
• You obey the law.
• You’re financially responsible.
• You’re consistent.
• You recognize and acknowledge your responsibility to the State of CA.
• You recognize and acknowledge you responsibility to other drivers.
• You recognize and acknowledge your responsibility to the passengers in your car.
• You recognize and acknowledge your responsibility to yourself.

As you can see, non-traditional credit references often say a lot about you. Don’t underestimate the importance of this in obtaining a Loan Approval when you have no traditional credit history. 

A statement from your auto insurance provider is just a prime example. Lenders may also ask for any of the following (this list is not exhaustive and 1, 2 & 3 are a certainty):

1. A letter from your landlord documenting on-time rent payments, cancelled checks, or a copy of the Property Manager’s rent ledger. 
2. Payment history from your utility companies (gas, electric, water, etc.).
3. Payment history from your cell phone or internet provider.
4. Payment history for your child support (occasionally).
5. Payment history for your taxes (occasionally).

Together, these items help the lender build an alternative non-traditional credit profile. This non-traditional credit profile provides the credit portion of your application and reflects no scores.

If you’ve made a consistent effort to handle your affairs in a timely manner over the years, you can still qualify for a home loan, even with no traditional credit history or no traditional credit scores.