Alternative credit scoring has been growing in popularity for several years. Many consumers do not like the idea that the credit industry is built mainly on the assumption that you need to get into to debt (no matter how quickly you pay it off) in order to show that you are financially responsible.
As a result, companies like eCredable have been gaining traction. eCredable.com builds a credit report and assigns a rating that includes your payment history on bills such utility and rent payments. It then helps establish your credit history beyond whether or not you’ve had credit cards or a car loan.
Building Credit History Without Debt
The AMP (All My Payments) Credit Report and AMP Credit Rating are products that eCredable offers to lenders willing to use their model for determining credit risk.
While these types of alternative scoring models have been helpful for those looking for personal loans or car loans, it’s been slow going for mortgage lenders.
There have been mortgage lenders willing to partner with alternative scoring sites, but the options have been limited, and rarely involved FHA loan options. That’s about to change with eCredable’s announcement that alternative credit scoring has an “in” for FHA loans.
Choosing Alternative Credit Scoring
eCredable recently announced that it’s partnering with South Pacific Financial Corporation (SPFC) as a mortgage lender — and this lender is willing to help consumers qualify for FHA loans using alternative credit scoring. “We’re very excited to announce this new partnership,” Steve Ely, the CEO of eCredable, told me in an email. “FHA loans are one of the few remaining loans that can be manually underwritten and do not require a FICO score.”
Of course, many lenders use FICO scores for FHA loans anyway. Over the years, FICO has become synonymous with just about all lending decisions. According to Ely, this partnership opens up home ownership with the help of FHA loans to people who may not have traditional credit established.
This group of people includes immigrants, who are new to the country, and millennials, who have proven themselves skeptical of the credit industry and the current system.
Qualifying for FHA Lending
This doesn’t mean that anyone will be able to qualify for FHA lending, however. There will still be qualifications to meet. Ely says that SPFC will use the AMP Credit Rating of A- as a determinant in underwriting, along with other requirements.
However, since eCredable’s method includes non-credit information such as gym membership payments, utilities, and other alternative data, it’s possible to receive that rating without opening and using a credit card account. For many homeowners who want to live completely without credit, except for a mortgage, this might be good news.
It will be interesting to see how far this alternative scoring trend ends up going. With many consumers pushing back against the “traditional” FICO model, and with many interested in finding new ways to establish financial credibility, a change may be coming.
In fact, FICO is piloting a program right now that involves the use of alternative data. It might not be long before credit scoring is less about credit, and more about your overall financial habits.
What do you think of this change in building a traditional credit score?