Answer

Neither the lack of credit history nor the borrower's decision not to use credit may be used as a basis for rejecting the loan application.

FHA permits mortgage lenders to establish a borrower's credit history through nontraditional means, including the compilation of performance on rental payments; utility bills; telephone and cellular phone services; cable television service; payments to local stores, etc.
This practice is appropriate when the borrower has insufficient trade lines to establish a credit score.
Lenders also may use nontraditional credit verification to augment "thin-file" credit reports where a credit score was generated but based on only a few trade lines. However, nontraditional credit reports may not be used to enhance any poor credit history on a traditional credit report.
Handbook 4155.1 provides guidance for establishing and evaluating nontraditional credit histories and also describes FHA's acceptance of those enterprises that can develop a verifiable credit history for borrowers with limited traditional credit.
Qualifying ratios are to be computed only on those occupying the property and obligated on the loan, and may not exceed 31 percent for the payment-to-income ratio and 43 percent for the total debt-to-income ratio. Compensating factors are not applicable for borrowers with insufficient credit references.