What to do when you have no credit score or minimal credit history

As consumers, we have no control over the rate of interest or the cost of housing. However, we do have some control over our credit rating. If you are willing to take a pro-active approach and complete a few extra steps, you can make a difference.

The newest changes from both Fannie Mae and Freddie Mac allow mortgages to borrowers with no credit scores. In order to build your own credit profile, you will need to submit documentation to your lender that demonstrates your history of paying bills on a timely basis. Generally, the proof that is submitted pertains to creditors that do not report to credit bureaus. Both conventional and government agencies refer to this option as “non-traditional credit.”  Sources of non-traditional credit documentation can include any of the following:

• Cell phone bills
• Utility bills (gas, electric)
• Cable television bills
• Automobile insurance
• Health insurance
• Payments to child care centers
• Payments for medical care

Credit reports include details and payment history of mortgages, personal loans, vehicle loans, department store cards, and revolving credit cards such as VISA or Mastercard, etc. The creditors noted above do not report to the credit agencies—however, collection and delinquent accounts are reported.

Your lender may request anywhere from two to four references, and you will need to provide 6 to 12 months history that demonstrates a regular pattern of timely payments. If there are two borrowers applying for the mortgage, the number of references required may be reduced if one borrower has a full credit report and score.

All this is explained in Chapter 5 of Housing Finance 2020, along with specific requirements for conventional, FHA, VA, and Rural Housing loans.  If you have had credit problems in the past, you are not alone. There is guidance included, along with instructions on how to obtain a free copy of your credit report.

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