Loans with no credit history

Maybe you’re a young professional with a high income and you’re ready to buy a house—but you’ve always eschewed credit cards or taking out loans, so you have no credit history. Or perhaps you’re emerging from a marriage in which your credit trail was all under your ex-spouse’s name.

Buying a house if you have no credit history is tougher than if you have an established credit score and good payment history. But it’s not impossible. In fact, government programs that help first-time homeowners have a playbook just for mortgage applicants with no credit history.

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Evaluating nontraditional credit history

You may not have a typical credit history via credit card use or repaid bank loans, but you haven’t been living under a rock. You’ve likely been renting a property, paying utilities, watching cable TV and talking on your mobile phone. Your payment history is out there; it’s just a little harder for a computer-generated credit score to locate.

Guidelines by the U.S. Department of Housing and Urban Development for FHA loans address how these nontraditional credit histories can be used to qualify for a mortgage. Successful applicants must be able to show for at least one year:

• No history of delinquency on rental payments
• No more than one 30-day delinquency to other creditors, such as utility or car insurance payments
• No collection accounts other than medical-related incidents

You also must not have debts, including your proposed mortgage payment, that total more than 43% of your total income, and you must have at least one month’s worth of cash reserves following settlement of the mortgage costs and down payment.

Getting a foot in the door

However, just because you qualify for an FHA loan doesn’t mean every bank will open its mortgage doors to you. Many financial institutions don’t want the hassle of manually collecting a paper trail—called a “manual underwrite” mortgage loan—to help you get financed. It’s easier for them to work with people who have an established credit history and FICO score.

Interesting facts

• High Mark Credit Information Services is credit information company based in Mumbai. It keep a record of loan repayment history on credit facilities extended to an individual across the board. This helps lenders analyse the risk profile of individuals before extending credit. This also keeps non-performing loans in check.
• A credit score in the United States is a number representing the creditworthiness of a person, the likelihood that person will pay his or her debts.
  Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers. Widespread use of credit scores has made credit more widely...