Your regular credit report is a document detailing your credit card and loan payment habits. In contrast, an alternative credit report reveals your monthly bill payment habits, showing whether you pay your utility, phone and rent on time and in full.
Those are the basic differences between traditional credit reports and alternative credit reports, but do they share any similarities? We'll provide a thorough look at both these types of reports to show which one is right for you.
How a traditional credit report works
When we say "traditional" credit report, we're referring to one that only gathers information about your credit cards and loans. These reports not only reveal how diligently you've paid debts in the past, but also show how much credit you have available, the amount of credit you're using, whether you make principal payments and other such details.
Traditional credit reports detail why you got a particular credit score – that's a three-digit number indicating whether you're financially responsible. Credit Bureaus – Experian, Equifax and TransUnion – calculate your score by referencing the data within your report, and generate a number between 300 and 850. The higher the number, the better your credit rating.
Auto dealers, banks and other lenders reference traditional credit reports to determine if providing a loan to you will put them at risk. Basically, they don't want to provide a $10,000 loan to someone who's likely to fall behind on payments.
Herein lies the problem with traditional credit reports: If you've never owned a credit card or taken out a loan, the credit bureaus don't have enough information to develop a report for you. That means when you go to apply for a loan, lenders don't have any details to reference, and therefore, won't engage you as a customer. They don't want to lend to customers they can't assess beforehand. That's where alternative credit succeeds:
How an alternative credit report works
In contrast to traditional credit reports, alternative credit reports gather information on your internet, phone, insurance and utility bills as well as your rent. While some credit bureaus will charge you to receive credit reports, some alternative credit agencies, PRBC being one of them, allows you to access your alternative credit report for free.
Alternative credit reports are based on both publicly available and private information. Here's how it works, you set up an account with an alternative credit agency, which then ask your permission to link to your utility, phone and subscription accounts. Then, the agency develops a report and a score (ranging from 100 to 850) within a matter of minutes.
The biggest advantage of using an alternative credit report is that it increases your chances of obtaining a loan even if you don't have any credit history. In fact, the Consumer Financial Protection Bureau is currently looking into alternative credit reports as a way for those with no traditional credit history to acquire mortgages, auto loans and other kinds of financing.
If you want to learn more about how alternative credit reports work, click here.