Mortgages without a credit score
January 5, 2021 | Posted by: Natalie Wellings
This is a great reminder that, in order to obtain credit (a mortgage), you need to be able to show a lender that you can responsibly manage credit. Having no credit is similar to having bad credit. It makes it very difficult for lenders to assess your risk level.
I sometimes come across clients who thought they were doing the right thing by not having any credit accounts or getting into debt. I always explain that having a credit account is not the same as being in debt. Having an open and active credit account such as a personal line of credit or a credit card and using it responsibly is the best thing you can do for your credit file. I always recommend using your card to buy groceries every month, as an example, and then paying the balance in full at the end of the month. This allows you to maintain a credit score and even collect some points if your credit card company offers it without being in debt!
That being said, I do have a lender that are willing to overlook a client with no credit history if you can provide other documentation, such as a reference letter from your landlord showing that you have paid your rent on time, as agreed, for the last 12 months. They will also take the payment history on other accounts, that do not report to the credit bureau, into consideration such as monthly insurance payments and utility payment history. It doesn’t sound like this couple inquired with a Mortgage Broker, which is unfortunate for them!