B3-5.4-01, Eligibility Requirements for Loans with Nontraditional Credit (11/05/2025)

If one or more borrowers do not have a credit score or have a limited traditional credit history, the lender must establish an acceptable nontraditional credit history. The lender must first check all three major credit repositories to verify the borrower’s credit history.

The credit report will indicate if a credit score could not be produced due to insufficient credit. Lenders must ensure that the credit report accurately reflects the borrower’s information, such as the name, Social Security number, and current residence of the borrower to confirm that the lack of traditional credit was not erroneously reported because incorrect information was used to order the credit report.

If one or more borrowers on the loan does not have a credit score and is relying on nontraditional credit to qualify, the following requirements apply:

• The property must be a one-unit, principal residence.
• Non-occupant co-borrowers are permitted, provided the requirements described in B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject TransactionB2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction, are met in addition to the eligibility requirements described herein.
• The transaction must be a purchase or limited cash-out refinance.
• The loan amount must meet the baseline loan limits—high-balance mortgage loans are not eligible.
• The maximum debt-to-income ratio is 36%.
• There is no minimum reserve requirement if at least one borrower can document a housing payment history as one nontraditional credit reference. Otherwise, a minimum of 12 months reserves is required. See B3-5.4-02, Number and Types of Nontraditional Credit ReferencesB3-5.4-02, Number and Types of Nontraditional Credit References, for additional information.
• A nontraditional credit history must be documented for each borrower without a credit score. See B3-5.4-03, Documentation and Assessment of a Nontraditional Credit HistoryB3-5.4-03, Documentation and Assessment of a Nontraditional Credit History, for additional information.

Unacceptable Uses

The establishment of a nontraditional credit history is not acceptable for the following scenarios:

• The lender is able to obtain a credit score for the borrower despite the borrower’s limited use of credit.

• The borrower has a sufficient amount of credit to obtain a credit score and the representative credit score is less than the minimum required.

  Note: An exception is permitted for certain HomeReady loans for borrowers with low credit scores. See B5-6-02, HomeReady Mortgage Underwriting Methods and RequirementsB5-6-02, HomeReady Mortgage Underwriting Methods and Requirements, for additional information.

• The borrower’s traditional credit history indicates significant derogatory references, such as a prior bankruptcy or foreclosure. In these cases, the borrower must have re-established credit in accordance with B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing CreditB3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit, including the establishment of traditional credit and a credit score.

When at least one borrower has a minimum of one credit account or installment account reported on their credit report, DU will assess the risk using the borrower's reported credit and the loan will be subject to standard eligibility guidelines.

When no borrower has at least one credit account or installment account reported on their credit report, DU will apply the following requirements:

• The property must be a one- to four-unit, principal residence, and all borrowers must occupy the property.
• The transaction must be a purchase or limited cash-out refinance.
• Reserves may be required as determined by DU.

In both cases, no verification of nontraditional credit references is required for any borrower when DU conducts a cash flow assessment and issues a message that the third-party asset verification report may be used to satisfy the requirements. Otherwise, a nontraditional credit history must be documented for each borrower as instructed by DU. See B3-5.4-03, Documentation and Assessment of a Nontraditional Credit HistoryB3-5.4-03, Documentation and Assessment of a Nontraditional Credit History, for additional information.

If a loan casefile does not receive an Approve/Eligible recommendation, it may receive a more favorable recommendation if a 12-month asset verification report is obtained (see B3-2-03, Risk Factors Evaluated by DUB3-2-03, Risk Factors Evaluated by DU). In some cases the loan may still be eligible for manual underwriting. The lender must determine whether the loan meets the requirements for a manually underwritten loan that includes a borrower without a credit score.

If none of the borrowers on a purchase transaction has at least one credit account or installment account reported on their credit report, at least one borrower must complete homeownership education prior to loan closing as instructed by DU. See B2-2-06, Homeownership Education and Housing CounselingB2-2-06, Homeownership Education and Housing Counseling, for the requirements.