Many consumers are unaware of the meaning of non-traditional credit or even know that they may already possess non-traditional credit trade lines. Many others do not understand the importance of non-traditional credit when learning how to build good credit history. Whether a consumer is attempting to establish or re-establish themselves credit wise, it will be beneficial to pay attention to their non-traditional credit as well as traditional credit.

Traditional Vs. Non-traditional Credit

Traditional credit consists of regularly paid debts that are reported to the consumer reporting agencies by creditors and will appear on a consumer’s credit report. These debts are factored into the consumer’s credit score. A few examples of traditional credit are mortgages, automobile loans, and credit cards. In contrast, non-traditional credit consists of regularly paid credit debts that are not reported to the consumer reporting agencies and generally do not appear on a consumer’s credit report. These "behind the scenes" debts are not factored into a consumer’s credit score. There are several examples of non-traditional credit, including rental history, utility/cell phone/cable/insurance references, payments to child care providers, rent-to-own appliance payments, etc. A good non-traditional credit reference is one that is paid regularly (preferably monthly), is not direct-debited or payroll-deducted, has at least 12 months of payment history, and is paid on time each month. Three or four credit references meeting these criteria (especially if one is a rental reference) would mean that the consumer has learned how to build good credit history with regards to non-traditional credit.

Who Benefits Most By Developing Non-traditional Credit?

Everyone who utilizes credit would benefit from learning how to develop non-traditional credit history. However, the following consumers would benefit the most:

• Those who have never established any type of credit history
• Those with minimal credit history
• Those with damaged traditional credit who desire to learn how to build good credit history

A consumer with no credit history at all may need to develop non-traditional credit before they can be approved for traditional credit. A non-traditional credit reference may be required for a loan approval. The same holds true for consumers with minimal credit history. Consumers with damaged credit history will need to focus on ways to improve credit scores by developing non-traditional credit while making repairs to their traditional credit. Instead of thinking of traditional and non-traditional credit as two distinctions, think of them as complementing each other to form your whole credit history. In order to qualify for that new cell phone plan, you may need a good traditional credit score. A mortgage lender may want to see a good rental reference before approving you for a loan. Being strong on both fronts may increase your chances of qualifying for the products and services you want in life. Seeking and implementing ways to improve credit scores may make these transactions a lot smoother and may save you money.