Traditional scalloped potatoes are made with a crams sauce and no cheese. However, cheesy scalloped potatoes are how most of us make them. My favorite cheeses are; parmesan, cheddar, gruyere, or gouda. You should avoid using pre-shredded cheese when making a creamy sauce. Pre shredded cheese contains additives such as potato starch and natamycin. These two preservatives prevent shredded cheese from clumping in the bag, inhibiting the cheese from melting into that creamy, dreamy sauce.