No Loan = No Credit … Or Not?

You hear it all over the news and on advertisements how important your credit score is. I agree … your score is absolutely important and has become the first go-to thing lenders look for.  Lenders want to know what your score is, how long you’ve had credit and how well you pay your bills on time.

But what if you’re one of those people who doesn’t have a credit score? It happens, even to some people who have some credit established.  Maybe the history isn’t enough for a FICO (Fair Isaac) score to be generated or there are just too few items on the report.

As an experienced loan originator, I’m here to give you some hope. Not all loan programs require a credit score.  The main criteria – you must meet the eligibility requirements of a MN first time homebuyer program.  In conjunction with this, we will use FHA financing which allows us to create credit.

Really, what it all comes down to is WHAT you have for debt obligations outside of a traditional credit report. It’s imperative that we create credit for the lending process.  This means we’re looking for accounts that you pay on a monthly basis, ON TIME and over the last 12 months.  Our goal is to verify three established accounts.  You need at least one account from either rent, telephone service, internet, TV service or utility company (a utility not included in your rent).

So, what do we look at? Are you renting?  Are you on time?  If it’s a management company or apartment complex you pay, we can verify directly with them your timeliness.  If you pay a private party, we want to see the last 12 months cleared checks from you to demonstrate you’ve paid on time.  As a tip, if you’re living at home, it makes sense to pay something to your parents, same amount EVERY month, for 12 months, always due the same time (say the 1st of the month) and via a check or direct transfer to their account.  This way, regardless of the amount, we can look at your history as a source of good credit.

What about other sources? Here are some quick reference items that you may pay monthly that can be used to create your credit history.  These items must be in your name.  This list isn’t inclusive, but a way to get you thinking about what you have out there and how it can help you get your first home!

Utilities, cell phone, car insurance, weight loss plans, lot rent on a mobile home, renters insurance, health club payments, child support/alimony you pay outside of your work paycheck, Netflix, gaming sites, internet or iPad-type services, lay-away, outside health insurance or monthly payments to a doctor.

It’s important to note that not only are we looking at your off-report debts, but we also look at any debts you have on the report. There are certain guidelines we follow to determine credit worthiness, such as seeing no more than TWO 30-day lates on any installment payments in the last 24 months and there is no major derogatory credit on credit cards in the last 12 months – that means, no more than 90 days late.  Truthfully, having NO lates on anything is the best way to work toward a loan approval.

There are certainly other guidelines that your situation must meet in order to get an approval on a loan. These are things above and beyond credit.  Your lender will go through these items with you and hopefully prepare you for what you need in order to be ready to buy.

Not all lenders allow the creation of credit, so you’ll want to check. The main idea I want to get across is that having no credit doesn’t necessarily mean no loan.  It’s best to find a lender you’re comfortable with, and one that has the ability to walk alongside you to make your dreams become reality!  I am here to help if you so desire!