Can you get a mortgage if you have no credit score? It’s possible, but your option of lenders will be very limited. And sometimes, these lenders charge you a higher interest rate. This means your mortgage repayments will be more expensive.
What is a credit score?
Your credit score is a ‘percentage’ the lender assigns to you, which identifies you as either a ‘high risk borrower’ or a ‘low risk borrower’.
The percentage is a calculation based on a combination of your payment history, your current debts, the length of your credit history, and the types of credit you have used.
Each lender has their own calculation method, which they do not publicly disclose in detail. Every lender will check your credit score as part of the mortgage application process. No lender will skip your credit check. Know that.
Some people have a good credit score because they historically pay their debts on time. Whilst, others have a bad credit score due to repeatedly failing to pay their debts on time, or at all. Many young people entering the workforce, or people who have never borrowed money, have no credit score.
No credit score? How to easily build your credit score
If you have no credit score, you could apply for a mortgage with a non-high street lender, or speak with a mortgage broker. However, it’s better to take at least six months to build your credit score. Having a credit history will make you eligible for more loans with different lenders.
Though it’s tempting sign up with any lender who offers you a loan, it’s important to find the lowest interest rate. This will keep your monthly mortgage repayments at a minimal.
Below are some easy tips to help you build your credit score:
- Sign up for a yearly phone plan, but make sure you always pay your bill on time.
- Sign up for a credit card with a low limit. My first credit card had a $500 limit. Pay your monthly phone bill and other small expenses with this card to grow your credit history. Cancel the credit card after you have purchased your property.
- Do not apply for a NEW credit card to pay the debt on an OLD credit card. This does not improve your credit history even if the new credit card company offers you a one year interest-free period. Lenders will see that you simply ‘moving’ an existing debt around.
- Get your employer to pay your salary into your bank account. This shows that you have a stable income, so you are capable of repaying a mortgage loan.
- Pay your university or college debts on time. You will be asked about your education debts in the application process.
- Always pay your taxes. You won’t get a mortgage if you evade taxes.
Remember, the lender assesses your ability to pay your debts, no matter how large or small, on time.
Check your credit score online for free
After you have built your credit history for a minimum of six months, you can check your credit score online for free. There are many companies who offer this service; simply Google ‘free credit check’.
Your credit report will include: debts you currently owe; types of credit you have historically applied for, including those which have been declined; a listing of defaulted payments or bankruptcy; and, most importantly, your actual credit score.
It’s advisable that you download your credit report before speaking with a lender or a mortgage broker. There could be a debt that, unbeknownst to you, is currently under-paid, or there could be an error in your report.
Do not apply for too much credit at one time
It’s not good to apply for multiple mortgage loans in a short period. Apply for one loan at a time. If your application is declined, wait a few weeks before making another application.
All your declined loan applications will be listed on your credit report. Multiple loan rejections not only decreases your credit score, but lenders will question whether you are a high risk borrower.
And don’t assume that your bank will give you a mortgage loan because you have been a long-term customer. I have been a customer with my high street bank for more than five years. Yet, the bank declined my mortgage application because of my visa status. The bank advisor never informed me that my visa would be an issue.
In conclusion, building your credit score is very easy. What’s hard for many people is maintaining a good credit history. This means paying all your debts on time, always. If you are not ready to pay your debts on time, then you’re not ready to invest in property.
So, what tips can you give other people who have no credit score?
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