If you have a short credit history and for that reason you can’t have a good 3 digit credit score, do you’ve any chance of getting a mortgage loan? I don’t think so. But there is a chance, if you have that patience and diligence to build a good credit history from the beginning.
First, you must know whether you are doing such activities, which can boost your credit history. Are you current with your apartment rent every month? Did you miss any payment of your cell phone bill? Aren’t you paying your doctor and dentist bill before the due date? If all of the answers would be “yes”, you can qualify for a mortgage.
What counts toward your credit history?
If you are paying all of your dues on time and in full, that doesn’t mean it’ll give you a credit history. These payments aren’t reported to the three national credit bureaus. The items that never get included in credit reports, can’t help you to build a good credit history. So, those financial items will be useless to get you an approval from the lenders. Meanwhile, if you’ve student loans, car loans or credit cards, and you’re paying them timely, it’ll surely help you to build a credit history.
A. FICO score - Your 3 digit credit score is an important number that lenders rely on. This number is normally known as the FICO score. Lenders use this information to judge how likely borrowers can pay their mortgage installments every month. Lenders generally consider a 740 FICO score as an excellent score. Lenders want to know that you have the mindset and ability to pay him back. Without a decent credit score, the lender won’t believe that you’ll pay back the mortgage loan.
You can qualify for a mortgage without having credit score, or a limited credit history. But it’s difficult. It would be better if you wait at least 6 months or a year to build a decent credit history, something that could help you for a better financial life.
B. Other forms of credit - To qualify for a mortgage with zero credit history, you'll need a lender who can perform manual underwriting and allows non-traditional forms of credit. Those lenders may consider utility payments, on-time rent payments and insurance payments. As a proof, the lender will require 12 months of actual canceled checks. This way the lenders can help you to build a credit profile. It helps if you’ve enough monthly savings, high income and low amount of debts.
C. Build a decent credit history - To get approved for a mortgage loan, first you will require a decent 3 digit credit score. And for a good credit score you must build a credit history. For doing this, you'll require to make credits and pay back your creditors.
Not having a credit history by all means, you’re not paying back any auto loans, student loans or any credit cards. You can do one thing, first, acquire a basic credit card. You can approach your local bank where you’ve already established a banking relationship. After getting this credit card, make payments before time and keep your credit balance below 30% of your available credit.
Approx it will take 6 months to create a credit history after making payments on time. You’ll have a solid FICO score and can apply for a mortgage.
D. Option other than credit card - What would be your option if a financial institution isn't interested to give you a credit card? Don’t worry, there are options. Your bank may issue you a secured credit card, which may be tied to your savings account. With such secured cards, you’ll have a limited credit (percentage of your savings balance). The bank can then deduct money from your account and pay off the minimum balance if you can’t pay it on your own.
You can also go for a joint credit-card account with your spouse or any other family member. Your joint account holder must have a stronger credit history. By using that joint credit card, you can build your credit history slowly. Don’t forget that being a joint credit card holder, you’re just as responsible as the actual account holder. If any of you fail to pay off that card dues, both of your credit score can be damaged.