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USDA Loans with Non-Traditional Credit
Prior to this year, USDA loans did not have any tradeline requirements. However, beginning this year, USDA changed to require borrowers to have 3 tradelines for at least 12 months if they can prove rental history. If rental history cannot be proven, 4 tradelines are required. At first glance this seems like a significant change. While it is a major shift in policy, it as not as concerning as one may believe.
Since USDA home loans were designed to meet the housing needs of low to moderate income families in rural areas, it is safe to assume a lot of potential borrowers may not be able to meet the new requirement. There is a caveat to the new rule: the tradelines may be what is considered "non-traditional." Non-traditional tradelines are typically monthly liabilities that do not appear on a credit report. This includes utilities, cell phones, health insurance or any other monthly obligation. In the past, non-traditional tradelines were used as compensating factors to give a loan file strength.
While this change could prohibit some people from obtaining a USDA Loan, it shouldn't impact a large percentage of people. Non-traditional tradelines are part of everyday life in most households.