Since you’ve never owned a credit card, you don’t have a history of having credit in your name. You’ve never used a credit card for anything before, but now you’re looking to purchase a home. If you’ve never had credit before, is it possible to acquire a mortgage loan? It depends. You are not the only one who lives their life in this manner, despite the fact that it may feel like no one else does.
According to a report that was published by the Consumer Financial Protection Bureau, “credit invisible,” also known as people who do not have a credit report on file with any of the three major credit bureaus, make up about 13.6 percent of the population of the United States, which is equivalent to about 45 million people.
Should you pursue your desire for a no-credit house loan if you have no credit history and little chance of getting one? It’s definitely worth a shot, but you should be prepared to put in some work.
What Kind of Information Is Important to Lenders?
When attempting to determine the type of borrower you are, lenders will often look at your credit score first. Your credit score is determined by each of the three credit reporting agencies by using a formula that is based on the information included in your report. This formula may be somewhat different from one agency to the next. On the other hand, you won’t have a credit score because you don’t have a history of using credit.
If you wish to apply for a house loan with no credit check, you might still be able to make use of the information that is provided in this formula. By looking over this material, you will gain some insight into the requirements that mortgage lenders have. The following are the components of a person’s credit history, along with the percentages of each that are utilized in the computation of a credit score:
- Payment history accounts for 35% of the total.
- The total amount owed is thirty percent.
- The length of your credit history accounts for 15% of your score.
- 10% of purchases were made using various forms of credit.
- a new credit score equals 10%
How to Convince Others of Your Dependability
The length of time that payments have been made on time is the first and most important factor that mortgage lenders look at when evaluating applicants’ credit histories. You won’t be able to rely on a mortgage lender to assess whether or not they should provide you with a loan based on your credit score; rather, you will be required to submit additional evidence that demonstrates that you are able to make payments on time and in full. If you can provide the necessary documents, however, many creditors may accept a payment history in place of a credit history from borrowers.
If you want to have a chance of persuading a lender to use your payment history instead of your credit history, you might need to have at least one year’s worth of paid receipts and potentially copies of cleared checks or other payment evidence. This will give you the best chance of succeeding. The collective name for these aspects is “alternative credit data.” The following is a list of the most prevalent alternate forms of credit data:
- bills for cellular phones, landlines, and cable television.
- Bills for utilities that are not incorporated into the rent
- Insurance payments (car, life, health, and other types of coverage)
- Union dues
- Care for children
- The cost of education
- Payments are made on a consistent basis into a stock purchase plan or a savings plan
The lender will determine the particular alternative credit data that is required of you as well as the amount of time for which you must furnish documents.
Where to Look for No-Credit-Required Home Loans
In the past, it was rather uncommon to be able to receive a no-credit house loan from a large lender, such as a large bank or large mortgage business. These types of lenders often need a good credit history from their borrowers. They are not willing to put in the effort required to meet your standards for approval.
The times are changing. The Fair Isaac Corporation, which is well known for developing the FICO Credit Score, has also produced the FICO Score XD, which is distinguished by its utilization of other data sources. If the FICO Score XD becomes widely used, it has the potential to radically alter the situation for those seeking no-credit home loans. There are also significant financial institutions that are working on the creation of their very own alternative approaches to credit scoring.
Other places to look for no-credit home loans include credit unions and smaller, community-based banks. If you have a personal relationship with a lender, such as with a small hometown bank, it is possible that the lender may be willing to perform the manual underwriting that is required to complete an application for a no-credit, alternative-data home loan.
The Federal Housing Administration (FHA) is one potential provider of house loans available regardless of credit history. According to Housing and Urban Development (HUD), the Federal Housing Administration (FHA) cannot reject a borrower’s application for a mortgage loan based solely on the fact that the borrower does not have a credit history.
There is a significant possibility that you will be approved for an FHA mortgage if you are able to demonstrate that you have paid items like rent, utilities, insurance, and other fixed costs on time over the course of one year.
The Crux of the Matter
If you have no credit history yet are interested in obtaining a no-credit home loan, you may have a few choices available to you. On the other hand, it’s possible that you won’t be able to avoid a lender’s request to look at your credit history. If you want to apply for a home loan, you might have to wait until you have established credit first.
If this is the case, you can apply for a standard credit card, keep a balance of less than 30% of your total credit limit, and make sure to pay off your debt by the due date each month. After a period of six months, you may have established sufficient credit to qualify for a FICO score and submit an application for a home loan.