For many homebuyers, establishing credit came once they applied for a credit card, took out a car loan or paid back student loans. But what about homebuyers who don’t have a credit score? Can they still apply for a mortgage? The answer is yes.
“It’s difficult to obtain a mortgage without a credit score,” says Tim Ross of Ross Mortgage Corp. “Lenders use underwriting systems that base the decision on certain criteria, including credit scores. But there are some nontraditional sources that can be used for verification.”
Whether you don’t use credit cards, are new to this country or a younger borrower who hasn’t built up enough credit history, there are some alternatives that can help to determine your credit risk. Here are some items that can be used for credit verification:
• Utility bills for gas, electricity or water.
• Phone and cable bills.
• Car or other insurance payments.
• Twelve to 24 months of canceled checks or verification from a landlord of on-time rent payments.
The more evidence you can provide that indicates a history of payments, the greater your chances of qualifying.
“You need at least 12 months and sometimes as many as 24 months of payments to prove your creditworthiness,” Ross says. “A bigger down payment offsets your credit risk, and so does your job stability, your cash reserves and a high income in relation to your debts.”
“If you’re living with your parents and haven’t established credit, it’s difficult to get a loan unless your parents are willing to co-sign,” says Clint Madison with Envoy Mortgage in Walnut Creek, Calif.
Borrowers who are new to the United States may have a credit report from another country. Ross says those reports can be used to create a record of payments for a loan application.
Ross says it takes just six months of credit-card usage to generate a score, but lenders would need other sources of credit.
“Using alternative credit doesn’t change someone’s score, so if it’s low, all you can do is let time pass while you do the right thing over and over again,” Madison says.
It’s important that prospective buyers with thin credit consult with a mortgage lender, Ross says. A lender can provide them with a plan to improve their chances of qualifying for a mortgage.
Information from MSN Real Estate provided by Cari Wilson, Cornerstone Community Credit Union, 414 61st St., Des Moines, 274-1460.