Author Topic: buying a house with no credit score  (Read 294 times)

solon

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buying a house with no credit score
« on: September 05, 2019, 02:01:26 PM »
My son had a small car loan and a slightly larger tool loan ($7k). He just paid off the car loan, and has a plan to pay off the tool loan in 8 months.

Today he texted me in a panic because his credit score dropped to 661 when he paid off the car. It will drop even more when he pays off the tools.

He is thinking about buying a house and I know his mortgage rate will be high at 661. It will be even higher if the score goes lower.

I've told him not to worry about it because he doesn't need credit, he'll save like crazy with his loans paid off, etc. It's unconvincing.

It is reasonable to expect him to save up a down payment, but it is really reasonable to expect him to save the entire cost of the house? It would take years (decades?).

Since he will have no credit score, how can he borrow for a house?

BlueHouse

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Re: buying a house with no credit score
« Reply #1 on: September 05, 2019, 02:12:26 PM »
Same as everyone else:  you buy it with the credit rating you have.  Luckily, he can improve that number while he's paying off debt and saving for the downpayment. 
Get one or two more cards.  Pay them off each month. 
If the only reason his score is so low is due to length of oldest credit account, then there's not much you can do about it.  Don't close any credit card accounts. 

Bernard

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Re: buying a house with no credit score
« Reply #2 on: September 05, 2019, 02:59:49 PM »
My FICO is now 841, and I haven't really tried to get-it-up. Paying off debt is not hurting your son's credit score. He'll need credit history, and for that he needs credit cards that he uses very little (ratio of "used" credit to available credit). Ideally, he uses his card only once or twice at the gas station, and then pays it off. That will, in time give him a rising credit rating. Unlike Dave Ramsey, I do not believe in "no credit rating" stories. By the time all of his credit history has been completely erased, he can have substantial equity in his home. I'd aim for 760 or more, and my wife, who never used credit cards before me and once had a car loan, has now an 811 FICO, without even trying. Time and discipline will do the work for him.

MilesTeg

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Re: buying a house with no credit score
« Reply #3 on: September 05, 2019, 03:05:34 PM »
My son had a small car loan and a slightly larger tool loan ($7k). He just paid off the car loan, and has a plan to pay off the tool loan in 8 months.

Today he texted me in a panic because his credit score dropped to 661 when he paid off the car. It will drop even more when he pays off the tools.

He is thinking about buying a house and I know his mortgage rate will be high at 661. It will be even higher if the score goes lower.

I've told him not to worry about it because he doesn't need credit, he'll save like crazy with his loans paid off, etc. It's unconvincing.

It is reasonable to expect him to save up a down payment, but it is really reasonable to expect him to save the entire cost of the house? It would take years (decades?).

Since he will have no credit score, how can he borrow for a house?

That credit it's terrible, and unless there is a serious problem with his score (rather than a lack of history) he can probably qualify, just at a higher rate. In any event, he should save up for at least 20% down do avoid PMI and further rate increases, which might? mean plenty of time to build that credit score.