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Message
Best way to build a credit score?
Posted on 4/23/15 at 10:44 am
Posted on 4/23/15 at 10:44 am
It's been very difficult for me to find a willing lender for a mortgage to buy my first home- due to a lack of any credit history.
I have never had any debt, or even credit cards. I started my first credit card in January. The last loan officer I met with basically told me the best she could offer me was two seperate mortgages. The first would be an ARM for 10% of the home at around 3.5 interest. The second would be another ARM at around 5% interest for 80% of the home.
I would have to put down 10% regardless, and the only way I could get a fixed rate would be to put 20% down.
Her suggestion was to take the mortgage if I really wanted a home, and then I needed to find 3 sources of credit to make payments on for a year (mortgage, credit card, and one more- she said maybe a personal loan for 1k or so strictly to make payments). After this- I would have credit history and the option to refinance into a fixed loan mortgage.
I'm unsure if I should take on this mortgage, which I feel doesn't offer competitive rates, or if I should keep renting, and take out a small personal loan from her and the bank which I currently bank with. Make yearly payments to establish history, and then look for homes a year later with more cash on hand and better offers?
I have never had any debt, or even credit cards. I started my first credit card in January. The last loan officer I met with basically told me the best she could offer me was two seperate mortgages. The first would be an ARM for 10% of the home at around 3.5 interest. The second would be another ARM at around 5% interest for 80% of the home.
I would have to put down 10% regardless, and the only way I could get a fixed rate would be to put 20% down.
Her suggestion was to take the mortgage if I really wanted a home, and then I needed to find 3 sources of credit to make payments on for a year (mortgage, credit card, and one more- she said maybe a personal loan for 1k or so strictly to make payments). After this- I would have credit history and the option to refinance into a fixed loan mortgage.
I'm unsure if I should take on this mortgage, which I feel doesn't offer competitive rates, or if I should keep renting, and take out a small personal loan from her and the bank which I currently bank with. Make yearly payments to establish history, and then look for homes a year later with more cash on hand and better offers?
5
Posted on 4/23/15 at 10:55 am to Tigerfan56
Just say no to the two mortgages with adjustable rates. Your lack of credit history is only part of the problem: the other part is your lack of 20% down payment. Over time, your credit score will improve if you keep using the credit card modestly and paying it off each month--this will be sufficient to build your credit history.
But money in the bank will help your ability to get a fixed rate mortgage at a competitive rate. So save, save, save: you want the needed 20% plus a decent 6-mo emergency cushion. Without those assets on hand, you are a higher risk for any lender.
If there is some thing you actually NEED (not want), like a new fridge, furniture, etc. sold by a vendor offering a 0% financing deal, then buy it and pay it off in the scheduled increments.
But money in the bank will help your ability to get a fixed rate mortgage at a competitive rate. So save, save, save: you want the needed 20% plus a decent 6-mo emergency cushion. Without those assets on hand, you are a higher risk for any lender.
If there is some thing you actually NEED (not want), like a new fridge, furniture, etc. sold by a vendor offering a 0% financing deal, then buy it and pay it off in the scheduled increments.
Posted on 4/23/15 at 11:06 am to hungryone
quote:
If there is some thing you actually NEED (not want), like a new fridge, furniture, etc. sold by a vendor offering a 0% financing deal, then buy it and pay it off in the scheduled increments.
Well this is an issue also.
Most such offers require a credit score to qualify. I need a TV and new bed. My plan was to buy these on 0% financing deals but I can't qualify even for those.
Posted on 4/23/15 at 11:10 am to hungryone
quote:
But money in the bank will help your ability to get a fixed rate mortgage at a competitive rate. So save, save, save: you want the needed 20% plus a decent 6-mo emergency cushion. Without those assets on hand, you are a higher risk for any lender
I also have 32k in the bank, and 10k in a Roth IRA. I would think that plus no debt would be enough to overcome my credit history.
Posted on 4/23/15 at 11:18 am to Tigerfan56
quote:
I also have 32k in the bank, and 10k in a Roth IRA. I would think that plus no debt would be enough to overcome my credit history.
Nope. The banks/finance companies have no way of knowing how you got that money--it could have been inherited, a cash settlement, or even a lotto scratcher. You're still a risk because you haven't ever demonstrated that you will pay back the money you owe. A solid payment history is a crucial part of establishing good credit. And $32K is not the kind of scratch that will make a bank overlook your lack of payment history. (If you were trying to buy a $100K house with $150K in the bank, they would happily offer you a loan.)
So if you don't qualify for the 0% through various vendors, then join a credit union (usually have the best rates) and borrow a small amount to purchase those needed items. Pay the loan off early to minimize your interest expenses, and be patient while your score goes up. It may take 18-24 mos. Meanwhile, saving more money will never, ever hurt your credit.
Posted on 4/23/15 at 11:19 am to Tigerfan56
quote:
I also have 32k in the bank, and 10k in a Roth IRA. I would think that plus no debt would be enough to overcome my credit history.
1. Go to a credit union.
2. Put about $5,000 of that $32,000 into a savings account.
3. Take out a credit card or a line of credit against that $5,000 (should be at about a 3% rate)
4. Buy your TV and bed or whatever with that line of credit.
5. Pay the minimum payment for 3 months, let it report, then pay it off.
6. Go get your mortgage.
Posted on 4/23/15 at 12:10 pm to hungryone
quote:
hungryone
Gave solid advice. Additionally a credit union may be more likely to get you started with a credit card. Pentagon FCU and Navy FCU are a couple I'd look at if I were you. You can also probably get a starter card that isn't secured through Capital One. Discover has a starter card as well.
You're going to have to show some patience. That credit file isn't going to build itself in a day. Best of luck to you.
Posted on 4/23/15 at 12:11 pm to anc
FHA loan.
Posted on 4/23/15 at 12:29 pm to Coach Guidry
quote:
FHA loan
Good option. FHA may also be able to take 12 months of paid utility bills as a partial credit history. Rental history as well showing rent paid on time.
This post was edited on 4/23/15 at 12:30 pm
Posted on 4/23/15 at 12:44 pm to VABuckeye
quote:
FHA may also be able to take 12 months of paid utility bills as a partial credit history. Rental history as well showing rent paid on time.
Had a co-worker who had to go this route. Only negative was having to pay PMI but he still owns a home.
Posted on 4/23/15 at 1:36 pm to Tigerfan56
Listen to anc's advice.
I took out credit cards in college and bought my friend's "expensive" items with them t.v.'s, phones, furniture, booze whatever,
They would give me the cash + the interest and I would pay the card off. I still have 4 credit cards that I do not use. they are just open lines of credit with a ) balance.
I took out credit cards in college and bought my friend's "expensive" items with them t.v.'s, phones, furniture, booze whatever,
They would give me the cash + the interest and I would pay the card off. I still have 4 credit cards that I do not use. they are just open lines of credit with a ) balance.
Posted on 4/23/15 at 1:39 pm to Tigerfan56
quote:
I have never had any debt, or even credit cards.
quote:
Best way to build a credit score?
Get debt + CC and wait for two solid years of on time payments + and keeping low utilization.
To get a solid 720+, get a CC and some type of installment loan. The variety + on time payments for 3+ months will get you to around that area.
quote:
I'm unsure if I should take on this mortgage,
Probably shouldnt. Those rates are pretty horrible.
This post was edited on 4/23/15 at 1:41 pm
Posted on 4/23/15 at 2:53 pm to Tigerfan56
Eh. I suggest finding a new banker.
If you don't mind me asking, who are the banks you are talking to?
You need to find a mortgage company (not a bank) that will do traditional, manual underwriting. This takes longer, is harder on the lender, but with a steady income and that cash, you should be able to get approved (assuming you want to buy a house that makes sense from a ration point of view).
FHA is perfect for this situation, as they often do underwriting without a credit score, but dang, that permanent FHA insurance is killing things. You could always pay it for a year and refinance out of it, but I think interest rates are going up in the mid to long term.
You can try someone like Churchill Mortgage (don't beat me up, anti-Dave Ramsey posters), or a local outfit like NOLA Lending. Another option is Van Dyk Mortgage. You need someone who will actually go to bat for you.
If you really want a credit score, go get a Rooms To Go card, buy a bed, pay it off, and go from there.
If you don't mind me asking, who are the banks you are talking to?
You need to find a mortgage company (not a bank) that will do traditional, manual underwriting. This takes longer, is harder on the lender, but with a steady income and that cash, you should be able to get approved (assuming you want to buy a house that makes sense from a ration point of view).
FHA is perfect for this situation, as they often do underwriting without a credit score, but dang, that permanent FHA insurance is killing things. You could always pay it for a year and refinance out of it, but I think interest rates are going up in the mid to long term.
You can try someone like Churchill Mortgage (don't beat me up, anti-Dave Ramsey posters), or a local outfit like NOLA Lending. Another option is Van Dyk Mortgage. You need someone who will actually go to bat for you.
If you really want a credit score, go get a Rooms To Go card, buy a bed, pay it off, and go from there.
This post was edited on 4/23/15 at 2:54 pm
Posted on 4/23/15 at 3:43 pm to Tigerfan56
You don't need a home. You should stick with the apartment. 
Posted on 4/23/15 at 5:07 pm to Tigerfan56
quote:I would think that Best Buy and Rooms to Go would let you open a credit card with them with a modest limit
Most such offers require a credit score to qualify. I need a TV and new bed
Posted on 4/24/15 at 8:11 am to ForeverLSU02
quote:
I would think that Best Buy and Rooms to Go would let you open a credit card with them with a modest limit
Not sure about Rooms to Go. I've been turned down already at best buy.
It took forever to even find a credit card that didn't turn me down. Finally got one from Discover.
Posted on 4/24/15 at 8:15 am to Tigerfan56
Thing that sucks is that you just got a ton of hard credit pulls on your record in the process.
Typically with no credit, you are limited to no credit type cards such as secured or starter cards
Typically with no credit, you are limited to no credit type cards such as secured or starter cards
Posted on 4/24/15 at 8:16 am to GenesChin
quote:
Thing that sucks is that you just got a ton of hard credit pulls on your record in the process.
How long do those affect your score?
Posted on 4/24/15 at 8:24 am to Tigerfan56
Not long and they only drop it a few points generally. How many applications did you put it?
Posted on 4/24/15 at 8:47 am to VABuckeye
Probably 5-6, all were months ago though. Since I got my CC in January, I've only tried to get the Best Buy credit card.
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