Dealing with Credit Challenges

What If I Have No Credit?

A borrower will sometimes not have enough credit references to obtain the loan they wish to secure. In this case, start by opening small lines of credit that report to one of the three major CRAs, and make purchases that can be paid off easily.  If you do not already have a checking or savings account, open one. Your bank or credit union may be able to provide you with a credit card account once you have established a history with them as a customer.  Ask your family or spouse to add you to their credit card account. By adding your name to an established line of credit, you can ride on their coattails, so to speak, and gain points by using that person’s credit history.


It is also wise to start saving money for the down payment on your home. The lender will look at your application more favorably when you are able to come to the table with a 20% down payment. Bear in mind, there are certain loan programs available that permit a percentage of gift money for down payment, which can come from a relative, or even the person selling the home.


Improving Your Credit Score

If your credit score is in need of improvement in order to secure financing, here are a few tips to help bring your score up:


Example 1: Distribute debt from revolving credit.

Our borrower, Mr. Jones, has a credit score of 664. He has five credit cards, but his Visa account is almost maxed out.  His other four credit cards have relatively low balances. Mr.  Jones moves the part of the debt from the Visa account to the other major credit card accounts, thus distributing the debt more evenly over the five cards. This changes the ratio of debt to available credit (which has a 30% impact on the overall credit score), and Mr. Jones successfully raises his credit score by 20 points with very little effort.


Example 2: Transfer outstanding balances to new accounts.

Our borrower, Mr. Smith, has only two credit cards, but both are pushing the limit of available credit. Mr.  Smith opens two new credit card accounts, each with a credit limit of $5,000. He transfers part of his existing balances to the new accounts. While he has acquired two new cards that have no established history, the greater impact is the change in the ratio of debt to available credit.  Ultimately, experts say that it is best to have two to five credit cards, and no more than that. You should keep your balances as low as possible. If you have a credit account with a zero balance, do not close the account.  Instead, make a small purchase so the card shows up as an active account on your credit report, and you will be awarded points for your long term credit history.


These are just a few tips to consider as you seek to obtain mortgage financing. But you should always know that as your loan originator, my job is just beginning when you close your loan with me.


As soon as you begin to make mortgage payments on time and in full, your credit standing will begin to improve. My team and I will continue to monitor rates on your behalf and alert you to the opportunity to refinance into a loan program with a lower interest rate as soon as possible. Our long term goal is to help you build a strong financial future.