Alternative Credit Services

Lenders and borrowers alike tend to focus on the FICO (Fair Isaac Corporation) score, but there are as many as 1,000 types of credit scores, according to Experian. It is possible to gain credit without the use of a traditional credit score, but it is far harder. It might just be best to start a credit history with the easiest card to acqure.

Are Alternative Services Worthwhile?

The problem with alternative credit-scoring services is that there is little guarantee that lenders will give weight to the score. One alternative service, Maxamum had only 800 lenders taking its credit score as of 2010, according to Payments Source. In 2010, standard practice for credit bureaus and creditors is to ignore nontraditional payments, such as utilities and rent checks. Utilities are not part of the traditional scoring model because utilities cannot report payment history themselves, making veracity of self-reported payments dubious at best.

Importance

The credit industry recognizes the importance of the potential profits from the 50 million people who do not have any credit history. The Fair Isaac Corporation, which also maintains the standard FICO model, has the FICO Expansion model, which includes data not used in the traditional formula, such as telephone records. As of 2010, 10 million consumers have been scored using the Expansion formula.

Misconception

You cannot use an alternative credit score in lieu of a your FICO score to escape negative information because of missed payments and other problems. Alternative scores are for people who choose not to use credit, but pay their bills on time. Also, consumers should watch out for credit-repair or credit-service scams. Some companies claim they can give you a new identity under which you can take out a loan -- this practice is illegal.

Tip

The biggest lenders, such as the federal Fannie Mae and Freddie Mac, are waiting to see how well alternative scores work, as of 2009. In the meantime, consumers without a credit history should consider a secured credit card. These are the easiest types of credit cards to get, but require a deposit equal to the credit limit. On the plus side, they report to the credit bureaus and banks often offer credit cards once you establish good history with your secured account.