B3-5.4-02, Number and Types of Nontraditional Credit References (02/07/2024)

The number of nontraditional credit references that must be documented for a borrower without a credit score differs depending on the underwriting method and loan product, as described in the table below.

The types of credit references that can be used to develop a nontraditional credit history are those that require the borrower to make periodic payments on a regular basis with intervals that are no longer than every three months.

Note: There is an exception to allow a longer interval for the payment of real estate taxes on the borrower's principal residence as described below.

The lender should consider whether the borrower has any eligible housing expenses and then review other nontraditional credit references. The lender must conduct an informational interview with the borrower to identify all credit references covering the most recent consecutive 12 months. If the lender is requesting a nontraditional mortgage credit report from a consumer reporting agency, the agency will conduct the borrower interview and obtain the list of available nontraditional credit references.

In all cases, the payment history for each credit reference must be documented for the most recent consecutive 12-month period. All credit references must be included, not just those that reflect acceptable performance.

Acceptable Housing Payments

Loans underwritten through DU where a nontraditional credit history is required must include housing payments as one reference of nontraditional credit. Loans underwritten manually are not required to have a housing payment as one reference of nontraditional credit. However, if no borrower on the loan has a housing history, a minimum of 12 months’ reserves must be documented.

The following are examples of acceptable housing payments:

• Rent: payments made to a landlord or property management company;

• Privately held mortgage loan: housing payments not reported to the credit bureaus, such as contract for deed payments and other similar arrangements, provided the payments are related to the borrower's principal residence; and

• Real estate taxes: payments made on the principal residence, regardless of payment frequency (for homes owned free and clear).

Other Nontraditional Credit References

In addition to a housing payment, the following other nontraditional credit references may be used to further develop additional nontraditional credit history for the borrower: 

• Utilities, such as electricity, gas, water, telephone service, television, and internet service providers. If utilities are included in the housing payment, they cannot be considered a separate nontraditional credit reference. Utilities can be considered a credit reference only if the payment history can be separately documented.

• Medical insurance coverage (excluding payroll deductions)

• Automobile insurance payments

• Cell phone payments

• Life insurance policies (excluding payroll deductions)

• Payments for property or renter’s insurance

• Payments to local stores, such as department stores, furniture stores, appliance stores

• Rental (or lease) payments for durable goods, such as automobiles

• Payment of medical bills

• Payment of school tuition

• Payments for childcare

• A loan obtained from an individual, provided the repayment terms can be documented in a written agreement

• Checking account, savings account, voluntary payments made to a payroll savings plan or contributions to a stock purchase plan, provided the records reflect an increasing balance as a result of periodic deposits over at least the most recent 12 months. Contributions must have been made no less than quarterly.

• Wire remittance statements demonstrating a consistent amount of funds remitted over the most recent 12-month period.