Just in case you need a quick refresher: Alternative credit reports track how diligently you pay your utilities, phone bills and rent on a monthly basis, producing a score that helps lenders decide whether you're a creditworthy individual.
Like anything else, there are quite a few myths associated with nontraditional credit reports. Here are four that are pretty misleading:
1. Alternative Credit Reports Haven't Been Around for Too Long
Search "alternative credit" online and you'll find dozens of articles claiming that it's this new, innovative solution the big three credit bureaus have just started offering.
That couldn't be further from the truth. For example, PRBC has been developing alternative credit reports for more than 15 years. Alternative credit is a new venture for Experian, Equifax and TransUnion, but that isn't the case for companies that have been collecting and processing data since the early 2000s.
2. Businesses and Lenders Won't Accept Alternative Credit Reports
This just isn't true, pure and simple. For one thing, around 8,500 businesses accept PRBC's alternative credit reports.
Sure, you're probably going to come across lenders who aren't familiar with alternative credit reports, but the good thing for you is that they're legally obligated to review them. That's according to the Equal Credit Opportunity Act, which states that lenders must take all kinds of credit information into account when assessing your creditworthiness.
Put it this way: When a bank comes across a customer who wants to buy a house, but doesn't have any credit history, the bank will ask for the applicant's utility and phone payment receipts to get an idea of that individual's financial standing. Why wouldn't they accept an alternative credit report?
3. You Have to Pay Money to Get Alternative Credit Reports
This depends on who you get your report from.
For example, if you go to one of the big three credit bureaus, chances are you're going to have to pay them something to get a traditional credit report that contains some alternative credit information.
In contrast, companies that specialize in alternative credit information allow you to access reports for free and as often as you want.
4. Alternative Credit Reports Aren't Reliable
Some people may go so far as to say that alternative credit reports don't help lenders assess people's ability to repay debts.
Research says otherwise. A study from the Policy & Economic Research Council found that utility and phone payment data could help lenders predict whether someone would pay personal loans and mortgages on time and in full.
Specifically, PERC found that most people who were seriously behind on their utility and phone payments also failed to pay their mortgage bills according to schedule. So this idea that alternative credit reports don't reveal lending risks is false.
In addition, be aware that not all credit reports are the same. Some alternative credit providers may not collect as much data as others. Some may use substandard scoring methods.
If you're wondering on what you should look for in an alternative credit bureau, check out one of our recent posts.