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When you apply for a nontraditional loan, alternative credit reporting agencies (CRAs) are often used. But what is an alternative credit reporting agency exactly? And where do they get your information? Let's start with what we know. "Banks (traditional and online), mortgage loan lenders, auto loan lenders, credit card issuers, and student loan providers all use credit reporting agencies to determine if a borrower is eligible for loans or lines of credit," explains Xavier Epps, Founder and CEO of XNE Financial Advising. This is pretty standard. When you apply for a credit card or a loan, the lender requests information about your credit history from one or more of the national credit reporting agencies (NRCAs). "There are three main credit reporting agencies: Equifax, Experian, and TransUnion," says Jared Weitz, CEO and Founder of United Capital Source Inc. "These three are what build and report your credit score and credit history." The Big Three A CFPB white paper gives us the following facts: The big three CRAs collect and maintain data on more than 200 million adults. They gather data from more than 10,000 sources. Monthly, these sources provide CRAs with information about more than 1.3 billion credit accounts or other trade lines. "The Big Three collect information on our ability to manage financial obligations," explains Epps, "however, they are usually limited to loan obligations." But what if you haven't had any mainstream loans or credit cards from banks, credit unions, or nationwide credit card issuers? If that is the case, you are likely struggling with access to mainstream credit. You are among the 1 in 10 American adults with limited credit history. Limited credit history means that the Big Three don't have enough information on you to formulate a credit score.  When applying for a loan or line of credit with a company outside of the mainstream, alternative credit reporting agencies are often relied on to help vet loan candidates.  Alternative CRAs Experian and company aren't the only companies collecting information about you. There are lots of other alternatives vying for competition in the credit reporting world, collectively referred to as the "fourth bureau." They don't all collect the same information, however. "There are nearly 40 alternative credit reporting agencies, most of which offer more niche credit reporting information from tracking rent and utility payments to monitoring checking-account management and insurance consumption," explains Epps.   What are alternative CRAs? "Alternative CRAs are credit reporting agencies other than the three most widely known," explains Faith Stewart, finance writer at Credit Suite. She adds, "Most personal credit scores come exclusively from the big three, but in the world of business credit, there has been an increase in the use of other, alternative CRAs." Alternative CRAs "are reporting agencies that generally focus on different types of accounts such as employment, housing, checking accounts, payday loans, and other types of accounts not included in a big three report," clarifies Joseph P. McClelland, III, a consumer credit protection attorney in Atlanta, Georgia. The main difference between the Big Three and the various alternative CRAs is the type of accounts they report on, says McClelland. He adds, "When you look at your Equifax report, it will not have information on your checking accounts, for example. If your employer or your new bank wanted this information, they would need to pull a different credit report to find out." "These agencies help the 'unbanked' or those with little to no credit gain credit," says Weitz, by using information alternative to that already listed in your standard credit history. "They determine an individual's credit by their history of paying everyday bills on time such as rent, cell phone, insurance and gas and electric." What different types of information are they gathering? There are specialty information companies for all sorts of fields, from employee and tenant screening, to specialties for medical information when applying for insurances, utilities data, retail merchant data, and gaming data, like VIP Preferred, which collects information to help casinos and racetracks manage risk. For our purpose, let's dive into those that collect and report mainly to lending and banking institutions.  Check and bank screening Banks and credit unions use these services to help decide whether they should cash a check for you or let you open a checking account. They want the following information: Unpaid negative balances Unpaid overdrafts Closed accounts If you were suspected of fraud If you have been a victim of bank or check fraud If you have previously had trouble opening or closing a bank account Companies Certegy Check Services ChexSystems CrossCheck, Inc. Early Warning Services Global Payments Check Services, Inc. TeleCheck Services Low income and subprime specialists This group provides information about several things. Each company has its own sources, but these are common:  Short term lenders, like payday loans and installment loans Car loans Check cashing Rent-to-own history, like furniture stores Cable and telecom accounts, and other bill payments Credit unions Debt collection companies Subprime home lending companies Subprime credit card companies  Banks Retail and consumer finance lending Property records Court judgments Companies Clarity Services (owned by Experian) CoreLogic Teletrack DataX (affiliated with Equifax) FactorTrust (owned by TransUnion) MicroBilt / PRBC Supplemental To help companies manage credit and fraud risk, the following companies sell supplemental information about you to possible lenders, etc: CoreLogic Credco Innovis LexisNexis Risk Solutions SageStream (subsidiary of ID Analytics, LLC) These are just some of the specialty CRA categories. Check out more here.  What kinds of lenders use them and why? "Almost all creditors use alternative credit information in one form or another," remarks Weitz. "There are a variety of ways alternative credit information is used to determine a loan approval, but it is difficult for individuals to know what specific information a lender is using behind the scenes to determine your loan approval." Many payday loan companies use info from alternative CRAs rather than the traditional ones. McClelland also adds that "Apartment complexes, banks, and employers will use different CRAs to find more information." This information is used to qualify (or disqualify) you from these housing or lending opportunities.  So, is the use of CRAs good or bad? Does it hurt or help you? We got some expert advice on the subject:  "It really depends on how your personal credit affects things," says Stewart. "If you have good personal credit, then the use of an alternative CRA that includes that in the calculation can only help you. If not, then it is definitely on the 'con' side." On the other hand, Weitz tells us, "If you have limited or poor credit and are in need of a loan, working with a lender that accepts a score from a CRA is your best bet. If they are willing to accept your report based upon bill payments, you will have a better chance of being approved. From here you can grow your credit score by paying the loan back with on-time payments.” Epps agrees, "A benefit of lenders using alternative credit verification sources is that you can expect an alternative and improved credit score that takes into consideration other financial behavior such as your ability to make rent, cable television, internet and other monthly payments on time." These are all factors that a normal credit score doesn't take into account, but alternative CRAs do. If you are already making regular payments for everyday things like utilities and internet, these can work in your favor. However, this can also hurt you. McClelland warns, "If you have an eviction or bounced checks in the past, this may not show on a typical credit report but show up on a specialty report."

For underbanked Americans who can't get approved for mainstream credit, it can be hard to find opportunities to build credit. Credit builder loans We asked Zara Mohidin, Head of Strategy and Business Development at Fig Loans, what advice she has for people at the start of their financial journey, seeking credit for the first time. Here's what she had to say: "The first place I would start is with a credit builder loan! It's a super easy, risk-free way to start building credit. What is a credit builder loan? It's a reverse loan, meaning that you make payments into a savings account over the course of one year. Then, at the end of the year, you'll receive all the principal you paid in and your credit score will be improved!" Did you know that credit builder loans are one of the three ways that the Consumer Financial Protection Bureau suggests establishing first-time credit? This type of loan is meant for people with no credit or bad credit. Basically, it helps to establish some positive payment history, which is the biggest factor affecting your credit score.  A credit builder is a secured loan. You make payments into an account—often one that accrues interest. Then, once you have completed the loan, you get the money back, and you have an established, positive credit record.  You've basically proven that you can handle money wisely and make on-time payments. Next, you can apply for other types of loans, including unsecured credit cards or personal loans, with a better chance of getting accepted.  Credit builder loans vs. secured credit cards The CFPB's second suggestion for establishing credit is with a secured credit card, when you don't have enough or sufficient credit history to get an unsecured credit card. A secured credit card is similar to a credit builder loan. The difference is that the consumer puts a deposit into an account up-front. That amount makes up your credit limit, accessible on your card. From there, you can build up your history of positive on-time payments.  When it comes to choosing between the two options, you might want to consider your spending habits. Often, credit cards make it easier to feel less inhibited about spending. You will have to be extra careful not to spend more than you can pay off in a month, so that you do incur too much in the way of interest charges for outstanding monthly balances.   Remember, that while you may also be required to pay interest on a credit builder loan, you will also earn interest on the CD or savings account where your money is being held. Credit Builder loans are likely the safer option in the long-run.  Credit builder loans vs. retail credit cards The CFPB's third suggestion for establishing credit from scratch is with a retail credit card. Nathan Grant, a Credit Industry Analyst from Credit Card Insider helps us compare and contrast these two products and their credit building potential. Grant explains, "Both a retail store credit card and a credit builder loan are using essentially the same methods to help individuals build up their credit scores — making on-time payments month-to-month until your balances are paid down to show that you are a responsible borrower." However, just like secured cards, there are differences. Grant points out that "Credit builder loans are installment loans while retail store credit cards are, like any other credit card, a revolving balance, and having a good mix of types of credit can also contribute positively to your credit scores. With a credit builder loan, you're guaranteed to pay some interest, while you can avoid interest charges by paying off your statement balance in full on a retail credit card. That said, if you fail to pay off your retail card balance by the due date, you'll be stuck earning interest at what's likely a much higher rate than with a credit builder loan." So again, the CBL is the safer option if you aren't confident in your monthly budgeting skills, says Grant. However, you need to think about startup costs and ease of access: "A credit builder loan is generally easier to get with no credit, but you have to pay up front, while a retail card won't cost you anything up front but may be a bit harder to get with no credit." Final advice "Since everyone's financial situation is completely unique outside of just credit scores," Grant explains, "there is no blanket recommendation that would be the go-to choice every time. Your best bet is to self-assess your responsibility and your financial objectives beyond just building credit and see what option makes the most sense for you." Sometimes a mix of different credit building products can lead to the best results, especially if you are financially responsible with them. Shop around to see what is available in your area, or at your local credit union. "It's important to remember that not all credit builders are the same," says Mohidin. "Some credit builder loans actually penalize you for being late by charging late fees and reporting your payment as delinquent to the credit bureaus." That can be a "two steps forward, one-step-back" type of move, where you will lose out on many of the benefits. Fig's credit builder loan doesn't penalize you for late payments. Instead, an account is closed, to save you from counter-product negative reports to the credit bureaus. Other credit builders have different helpful perks. Mohidin explains, "Some of our non-profit partners have even better products that will match every payment you make. For example, a great credit builder product (that inspired our own!) is the LISC Twin Accounts, so be sure to check your options!" You should shop around in your local area to see what credit builder loans are available online, at regional banks, local non-profits, or community credit unions. Special thanks to our expert panel: Zara Mohidin, Fig LoansNathan Grant, Credit Card Insider

Why can't I get a credit card? If you can't get approved for a mainstream car loan car loan or credit card, it is likely due to your credit history, or lack thereof. Certified Financial Planner Patricia Russell from FinanceMarvel (now knows as Credit Repair Expert) explains: "There are many reasons a company may refuse to approve you for a loan or a credit card. A company's decision is based on two main factors, and that is your income and your credit history." Do you have bad credit? "Having a credit score at or below 500 makes qualifying for loans incredibly difficult," adds Jared Weitz, CEO and Founder of United Capital Source Inc. Russell says, applicants with a bad credit score are typically turned down. When they are approved, it will come with a high interest rate. Weitz explains, "It is at this score range where payday loans become an only option." But what if you don't have a credit score? You aren't alone.Millions of Americans are in the same boat. Check out these crazy stats: Forty percent of Americans can't cover an unexpected $400 expense. And a 2018 report revealed that 1 in 3 adults applied for credit, 23 percent were denied at least once and 31 percent were denied or offered less than they wanted. Getting denied can be a confluence of factors, but credit is a very likely common factor, whether that means bad credit, no credit, or unscorable credit. Are you invisible? "When you go to apply for a cell phone or to rent an apartment or get a loan, companies pull up your credit history," explains Russell. "For most Americans, this will be full of credit cards and loans and other activity in their financial lives. Being credit invisible means that there is no history available. The credit invisible do not have good credit or bad credit. This means that companies have nothing to base their decisions on. They have no indicator whether you would pay your bills on time and don't have a way to decide if they should do business with you and what they should offer you.""Credit invisibility is a major obstacle for many of the nation's citizens," says credit industry analyst Sean Messier with Credit Card Insider. He's got a point: According to the U.S. Consumer Financial Protection Bureau (CFPB), 11 percent or 26 million adult Americans are credit invisible. Russell explains: "The credit invisible are seen as wild cards and too risky to work with, so are also commonly turned down for mainstream credit cards and loans. When an applicant has been turned down by mainstream credit sources, the next best option when money is needed is to find a payday loan to help them get by." Are you unscorable? On top of that, the same CFPB report says that 8 percent of adults or 19 million consumers have an unscored credit record. "Being credit unscorable indicates you have very limited, or thin credit history," explains Weitz. Thin credit history matters. If you don't have six months of credit history, you can't get a FICO score. "[T]his is common," says Weitz, "for young graduates, immigrants or cash-only consumers that have not been making card purchases or building credit." Why does it matter? "When I think about credit invisibility," says Zara Mohidin, Head of Strategy and Business Development at Fig Loans, "I think about a term coined by our partners at the United Way, called ALICE. There's a lot of jargon out there about "underserved" or "underbanked" Americans but what I love about ALICE is that it actually describes the person who is credit invisible. ALICE stands for Asset Limited Income Constrained Employed and it is a new way of defining and understanding the struggles of the households that earn above the Federal Poverty Level but don't have access to mainstream sources of financing. ALICE is your child's teacher, your parent's caretaker, your office clerk, and your waitress. Despite the critical nature of their jobs in our society, ALICE is struggling to make ends meet and a big part of that has to do with credit invisibility. With a lack of access to affordable credit, one unexpected car accident or medical bill can push ALICE over the edge."  Additionally, Weitz explains, "Without history, loan offices or credit agencies have nothing to base your financial history from — and this is viewed as a risk for them."What does this mean for you? Ivan Chong, founder of Lazy Finances understands the predicament. He puts it this way, "Unfortunately, it's a catch-22 since having no credit makes it difficult to get a credit card to build your credit." If you lack a credit score, Chong says that security deposits may be required for a cell phone or utility services and car insurance rates can be affected. On top of that, if an unexpected medical bill or emergency comes along, you will have very few options for borrowing money. What do you do about it? "Similar to the general idea, ‘it takes money to make money,' same goes with good credit," says Weitz. "If you have low or no credit, gaining access to build positive credit is difficult. Low-income people have limited cash flow in and out which means gaining credit takes longer. This can be fixed by taking steps to build a credit score, such as recording on-time rent payments or taking out a credit-builder loan through a community credit union." Along those lines, the Consumer Financial Protection Bureau suggests three ways to establish credit from scratch: an in-store/retail credit card, a secured credit card, and a credit builder loan. Let's take a minute to learn more about these three options. 1. Retail credit cards"Retail credit cards are generally issued by a notable financial institution and co-branded with a certain merchant," explains Messier. These are the in-store cards that are often offered to in-store and online shoppers at department, hardware, or clothing stores. There are many variations, but in general, in-store credit cards have the following characteristics: Easier approval for lower credit scores Only able to use them at the retailer in question Higher interest Lower credit limit Often come with rewards for signing up and purchases Russell gives us a rundown: "Retail credit cards are easier for people with a bad credit score to be approved for. They typically have subprime terms written into their normal contracts, so it is normal for them to accept people with lower credit scores. This can give someone with a bad credit score, or someone who is credit invisible, the opportunity to build up credit. These cards are suggested for that as long as you know you need to pay the card off in full every month in order to build a positive history of on time payments, and so you can avoid paying the high interest rates that come with these types of cards. To do this, you'll want to apply for a card at a place you shop often since these cards can be limited in where you can use them. If you are a frequent shopper at Amazon or Target, they have popular retail card offers that are known to report to the credit agencies."2.  Secured credit cards"Instead of using a retail credit card to establish credit, consider a secured credit card," suggests Messier. Secured credit cards are issued by all of the big credit card companies, and are often co-branded with a specific bank or credit union. Examples include Discover it Secured, Citi Secured Mastercard, and OpenSky Secured Visa from Capital Bank N.A. Common secured credit card characteristics include the following: Easier approval than unsecured cards Requires you to pay a security deposit The credit limit is a percentage of your deposit (50%-120%) "Use the card wisely by making on-time payments," says Weitz. He adds, "eventually, you will qualify for an unsecured card and receive the deposit back." With an unsecured card, you can officially be ushered into mainstream credit and loan options. 3.  Credit builder loans"A "credit-builder loan" is basically what it sounds like: a loan designed solely for the purpose of helping you build good credit," writes attorney Amy Loftsgordon on NOLO. These are often available through online lenders like Self Lender, community credit unions and banks, as well as Community Development Financial Institutions (CDFIs), like Fig Loans. As with the other credit building methods, credit building loans can differ, but they generally include the following characteristics: An initial payment or account origination fee applies Make monthly payments into a savings account Many offer a 20+ day grace period (to help avoid reporting disparaging info to the CRAs) Amounts are generally small $500-$3,000 and last 12-24 months Once you pay off the loan, you can access the account It is important to note that once you take the first few steps towards establishing your own credit, it can take six months or more to get a credit score.

The Consumer Financial Protection Bureau suggests establishing first-time credit with the following products: Retail credit cards Secured credit cards Credit builder loans If establishing credit for the first time seems like rocket science, it's okay. There are rocket scientists to help translate for us. We asked personal finance experts the best ways to help establish or re-build credit. Here’s what they said. Know your endgame "A secured card is a great way to be introduced to, or build back, good credit. These cards are reduced in terms of their credit limit and you must have enough funds to pay the deposit up front. Consider your goal with applying for this card before opening the account; know the ideal credit score you want to hit before moving on to an unsecured card and gaining the deposit back. An unsecured credit card places more trust in you to make smart financial decisions with a larger credit limit and quick access to spending. Not having a deposit requirement means you do not need to save up anything in order to open this account. Be aware of annual fees and review APR to vet out the best card options available." — Jared Weitz, CEO and Founder, United Capital Source Inc. Give yourself a boost “Luckily, new methods are being introduced such as Experian Boost which gives you credit for paying your utility bills and UltraFICO which looks at your bank account transactions and balances. These both give positive boosts to people with no credit or bad credit enabling them to start building their credit responsibly. These are both free which is much better than secured credit cards and secured loans as a first step.” — Ivan Chong, Founder, Lazy Finances Research Fee Structure “It’s a good idea to research secured credit card offers before choosing one. Not only will the interest charged be high, but you’ll want to find out how much you’ll be charged for processing and application fees, as well as annual fees.” — Cara O'Neill, NOLO Try some nepotism “Asking a friend or family member to add you as an authorized user on [their] credit card is another method that works well if they have a long credit history.” — Ivan Chong, Founder, Lazy Finances Bet you can’t have just one “Consider using a credit builder loan alongside a secured credit card, if you’re able — this will diversify your variety of credit accounts, which should help your credit scores.” — Sean Messier, Credit Industry Analyst, Credit Card Insider Thanks to our experts for their helpful advice.