What if I Have Little or No Credit History?

While credit is one important part of a total buyer profile when financing a home, there are ways, in addition to traditional credit, that you can prove to a lender that you have a positive payment history.

This is called alternative credit or nontraditional credit, and there a number of ways you can show payment history. One way you can do this (for example, if you rent) is to show cashed checks written on or before the day that the payment is due.

Other bills that you pay each month can be used in the same way. If you pay gas, electric, or monthly car insurance bills, you’ll also have a written record of your payment history. Cell phone bills work the same way.

If you are younger and just starting to build your credit history or don’t currently have any of the above items, you still have options.

There are several ways to actively build credit, especially if you are in a longer-term time frame to be purchasing a home.

One way is to start with a few smaller-type credit cards, such as from a gas station or a department store. What you can do is to use them regularly, even for small purchases, then pay them off each month.

In the eyes of the credit bureaus, the companies to whom the creditors report your payment history each month, you have consistent on-time payment history, and this is a good thing.

Another option is to look into what are called secured credit cards. This is where you give the credit card issuer the entire limit of the card when you sign up, say $500. You then basically borrow against yourself when you use the card. As you make payments, the card issuer reports your payment history to the bureaus as if it were an actual credit card.

If you have questions about any of this, please reach out. I would be happy to go over the options and help you determine what is right for you and your circumstances.