Author Topic: Buying house with no credit  (Read 6551 times)

Timmmy

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Buying house with no credit
« on: June 12, 2015, 07:45:40 AM »
I know not everyone here agrees with this but my wife and I are in the process of paying off our house.  We pay a ridiculous rate of 6.75%(at least in todays market) and are paying PMI.  We'll be done sometime in the next 6 months or so.  At that point we'll have zero open loans and zero open credit cards.  We'll begin saving for a large (30-50%) down payment on our next house.  That will take 2-3 years.  So we'll end up having a zero credit score when we go to buy and will need to get a mortgage.  Has anyone bought in that type of scenario? 

Everything I read says to have several verifiable trade lines or other monthly payments like rent.  The only monthly payments we will have will be gas/electric, gym membership, and cell phone. 

We're not open to getting credit cards or other loans just to boost credit scores so please don't suggest that.  Worst case scenario we would just wait longer and pay cash.

Anyone have experience buying without credit scores?


KCM5

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Re: Buying house with no credit
« Reply #1 on: June 12, 2015, 07:52:55 AM »
I've heard you should ask for manual underwriting, but I don't know how common or easy that is to find.

MilwaukeeStubble

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Re: Buying house with no credit
« Reply #2 on: June 12, 2015, 07:54:22 AM »
What makes you think you'll have 0 credit score?  I suspect your score won't be great but your mortgage will certainly still be on the report, possibly along with some other accounts you've had recently.  I may be wrong on this though, not an expert.

Regardless I would show up at a local bank or credit union with a nice big organized stack of financial documents to demonstrate income, savings, good status on your current mortgage, etc.  Bonus points if you're able to establish a relationship (checking account or w/e) with them now...

Guizmo

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Re: Buying house with no credit
« Reply #3 on: June 12, 2015, 07:56:43 AM »
Wait so you already have a loan? Why wouldn't that be in your credit report after you pay it off?

sokoloff

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Re: Buying house with no credit
« Reply #4 on: June 12, 2015, 08:46:06 AM »
I had a problem refinancing my house because I only had one credit card and one mortgage. Underwriter needed three current accounts and wouldn't budge on the point.

So, I went out and applied for 5 different no-fee cards that sit in my drawer unused; my score went up about 35 points (after an initial dip) and the re-fi a few months later was no problem. It took me less than one hour to do this. I know you don't want to hear this, but it really is that easy to game the system.

Timmmy

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Re: Buying house with no credit
« Reply #5 on: June 12, 2015, 09:23:50 AM »
What makes you think you'll have 0 credit score?  I suspect your score won't be great but your mortgage will certainly still be on the report, possibly along with some other accounts you've had recently.  I may be wrong on this though, not an expert.

Regardless I would show up at a local bank or credit union with a nice big organized stack of financial documents to demonstrate income, savings, good status on your current mortgage, etc.  Bonus points if you're able to establish a relationship (checking account or w/e) with them now...

Current mortgage will be gone.  I'll be multiple years without any sort of activity on my credit report and even longer on DW's report. My understanding is that at some point with no open accounts your credit score becomes basically zero or indeterminable.  I use credit karma to monitor my score and I've watched over the last few years my closed accounts fall off my report and lower my score.  My wife was on the mortgage for a second house we had but that was recently sold so I guess I can keep an eye on her score to predict what happens to mine. 

I had a problem refinancing my house because I only had one credit card and one mortgage. Underwriter needed three current accounts and wouldn't budge on the point.

So, I went out and applied for 5 different no-fee cards that sit in my drawer unused; my score went up about 35 points (after an initial dip) and the re-fi a few months later was no problem. It took me less than one hour to do this. I know you don't want to hear this, but it really is that easy to game the system.

I've got zero interest in participating in the system.  Even if I'm only in it to "game the system".  Credit cards and car loans are killing society and I refuse to participate.  I don't do deals with the devil. 

Like I said, if we have to, we'll save up and pay cash for our next house. 

thd7t

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Re: Buying house with no credit
« Reply #6 on: June 12, 2015, 09:37:53 AM »
What makes you think you'll have 0 credit score?  I suspect your score won't be great but your mortgage will certainly still be on the report, possibly along with some other accounts you've had recently.  I may be wrong on this though, not an expert.

Regardless I would show up at a local bank or credit union with a nice big organized stack of financial documents to demonstrate income, savings, good status on your current mortgage, etc.  Bonus points if you're able to establish a relationship (checking account or w/e) with them now...

Current mortgage will be gone.  I'll be multiple years without any sort of activity on my credit report and even longer on DW's report. My understanding is that at some point with no open accounts your credit score becomes basically zero or indeterminable.  I use credit karma to monitor my score and I've watched over the last few years my closed accounts fall off my report and lower my score.  My wife was on the mortgage for a second house we had but that was recently sold so I guess I can keep an eye on her score to predict what happens to mine. 

I had a problem refinancing my house because I only had one credit card and one mortgage. Underwriter needed three current accounts and wouldn't budge on the point.

So, I went out and applied for 5 different no-fee cards that sit in my drawer unused; my score went up about 35 points (after an initial dip) and the re-fi a few months later was no problem. It took me less than one hour to do this. I know you don't want to hear this, but it really is that easy to game the system.

I've got zero interest in participating in the system.  Even if I'm only in it to "game the system".  Credit cards and car loans are killing society and I refuse to participate.  I don't do deals with the devil. 

Like I said, if we have to, we'll save up and pay cash for our next house.
Utility bills are counted on your credit report and can go quite a way.  In my late 20's I had about a 750 with only a student loan and consistent payment of bills.  I still haven't had a credit card and am above 800.  I don't think you'll see the level of drop that you expect.

iamlindoro

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Re: Buying house with no credit
« Reply #7 on: June 12, 2015, 09:43:05 AM »
We're not open to getting credit cards or other loans just to boost credit scores so please don't suggest that.

OK, I won't suggest it, but why?  Nobody says you have to use them, outside of a quarterly cup of coffee or song on iTunes to keep them current.  Just curious.

Edit: I see your explanation now, thanks IP Daley for quoting it.  Personally I feel some of the same discomfort with credit being somewhat engineered to crush you when you make a mistake-- but my perspective is that you are actually fighting back by using them to your advantage and never allowing them to collect one red cent from you.  To each his or her own.
« Last Edit: June 12, 2015, 09:57:16 AM by iamlindoro »

ShoulderThingThatGoesUp

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Re: Buying house with no credit
« Reply #8 on: June 12, 2015, 09:45:54 AM »
Why are credit cards evil, but mortgages aren't?

Daley

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Re: Buying house with no credit
« Reply #9 on: June 12, 2015, 09:50:33 AM »
I've got zero interest in participating in the system.  Even if I'm only in it to "game the system".  Credit cards and car loans are killing society and I refuse to participate.  I don't do deals with the devil.

I've recently encountered something similar recently. The good news is, having no credit score isn't a bad thing, and most smaller lenders treat it as good as an excellent score for older people. Oddly enough, it demonstrates the capacity to balance books and operate without debt as they check into finances.

That said, if one wants to keep a foot in the financial game without playing themselves, there's always a trusted family member's credit card. If they're responsible and pay off debts without carrying a balance, have them issue a credit card from one of their accounts in your name. You don't actually need to use it, and it can just be cut up, but you get a sort of halo effect off of their good credit without playing the credit card game yourself.

That said, I sympathize and agree with you. Just throwing the info out there. I'm inclined to agree and embrace the carry cash for physical property idea you have if you don't want any skin in the game for purely ethical reasons. Don't play the game at all unless you need to.
« Last Edit: June 12, 2015, 10:10:00 AM by I.P. Daley »

Timmmy

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Re: Buying house with no credit
« Reply #10 on: June 12, 2015, 10:15:10 AM »
Utility bills are counted on your credit report and can go quite a way.  In my late 20's I had about a 750 with only a student loan and consistent payment of bills.  I still haven't had a credit card and am above 800.  I don't think you'll see the level of drop that you expect.

I've watched it drop ~75 points over the last couple years as accounts have fallen off my credit report.  I've never seen a utility bill on my credit report.  In fact I've never heard of utility bills reporting to the credit bureaus. 


OK, I won't suggest it, but why?  Nobody says you have to use them, outside of a quarterly cup of coffee or song on iTunes to keep them current.  Just curious.

Edit: I see your explanation now, thanks IP Daley for quoting it.  Personally I feel some of the same discomfort with credit being somewhat engineered to crush you when you make a mistake-- but my perspective is that you are actually fighting back by using them to your advantage and never allowing them to collect one red cent from you.  To each his or her own.

The more people that operate outside of the system the easier it is for others to operate outside of the system.  If everyone continues to play their game, by their rules, the game will go on.  I'd rather do my little part to change it.

iamlindoro

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Re: Buying house with no credit
« Reply #11 on: June 12, 2015, 10:20:32 AM »

OK, I won't suggest it, but why?  Nobody says you have to use them, outside of a quarterly cup of coffee or song on iTunes to keep them current.  Just curious.

Edit: I see your explanation now, thanks IP Daley for quoting it.  Personally I feel some of the same discomfort with credit being somewhat engineered to crush you when you make a mistake-- but my perspective is that you are actually fighting back by using them to your advantage and never allowing them to collect one red cent from you.  To each his or her own.

The more people that operate outside of the system the easier it is for others to operate outside of the system.  If everyone continues to play their game, by their rules, the game will go on.  I'd rather do my little part to change it.

Is your problem with the system of credit scores, or the offering of high-interest credit?  Because if it's the former, why shouldn't a business have an objective method of evaluating risk when deciding whether to lend money?  I get that you're trying to draw an ethical line in the sand, and respect it.  I just don't think you can ride the line only when it suits your purposes.  As pointed out above, if debt (and the system through which it is offered) is unacceptable, then you shouldn't be asking how to get a mortgage at all.  This is the consequence of your unwillingness to "play the game," as you put it, and thus something you should probably embrace.  It seems like that's already acceptable to you, most likely.
« Last Edit: June 12, 2015, 10:34:25 AM by iamlindoro »

mskyle

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Re: Buying house with no credit
« Reply #12 on: June 12, 2015, 10:30:28 AM »
Your credit score is not going to go to zero. It will probably go down if you close all your lines of credit, but it's not going to be at zero. You'll probably have a perfectly acceptable credit score. Ask for manual underwriting if you need to, but I bet you'll be able to get a mortgage just fine. Deal with the problem if it arises.

Bob W

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Re: Buying house with no credit
« Reply #13 on: June 12, 2015, 10:41:29 AM »
I'm so confused.   You don't loose your credit score just because you pay something off.   It follows you for at least 10 years after the last account is closed. 

I would suggest not closing any credit card lines as length of credit is a variable.    Check your score on Credit Karma and get a free credit report of all 3 bureaus.
Read some we info on improving scores and take action. 


Now for the real question --

You have a paid off house  -- can you explain to us why you feel you need a much more expensive house in 2-3 years?    Also explain why the new house you will purchase will be so expensive that you will need both the equity in your paid off house and 2 years of hard saving to get a 20% down payment?

I really think your long term plan is to acquire unneeded debt.     Not a good plan. 

If it is a kid thing - as in we are having a kid and need a 2 bedroom instead of our current 1 bedroom  -- consider staying in the same area or simply hand building a 300 ft bed and playroom addition to your current home for about 10K in materials. 

The school thing doesn't cut it with me.   If you have a kid in 3 years it would be 9 years total  until school time.   

In 9 years you could be retired and home school or at least save up enough to pay cash for the status symbol home and use your current home as a rental.

Please explain your thinking?

waltworks

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Re: Buying house with no credit
« Reply #14 on: June 12, 2015, 10:59:01 AM »
So you're asking for advice on how to go hat-in-hand to get someone to lend you money, but you don't want to be "part of the system"?

Awesome.

If you don't want to be part of the financial (or at least credit/loan) system, save up and pay cash. Otherwise drop the hypocrisy and do what you need to do to prove to the people with the money that you're a good risk.

-W

Timmmy

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Re: Buying house with no credit
« Reply #15 on: June 12, 2015, 11:22:33 AM »

OK, I won't suggest it, but why?  Nobody says you have to use them, outside of a quarterly cup of coffee or song on iTunes to keep them current.  Just curious.

Edit: I see your explanation now, thanks IP Daley for quoting it.  Personally I feel some of the same discomfort with credit being somewhat engineered to crush you when you make a mistake-- but my perspective is that you are actually fighting back by using them to your advantage and never allowing them to collect one red cent from you.  To each his or her own.

The more people that operate outside of the system the easier it is for others to operate outside of the system.  If everyone continues to play their game, by their rules, the game will go on.  I'd rather do my little part to change it.

Is your problem with the system of credit scores, or the offering of high-interest credit?  Because if it's the former, why shouldn't a business have an objective method of evaluating risk when deciding whether to lend money?  I get that you're trying to draw an ethical line in the sand, and respect it.  I just don't think you can ride the line only when you decide it's necessary.  As pointed out above, if debt (and the system through which it is offered) is unacceptable, then you shouldn't be asking how to get a mortgage at all.  This is the consequence of your unwillingness to "play the game," as you put it, and thus something you should probably embrace.  It seems like that's already acceptable to you, most likely.

I don't have a problem with most mortgages.  Credit cards and car loans are the real problem IMO.  That leaves mortgages as the only accounts on my credit report.  My current mortgage sucks and I am rapidly paying it off.  That's going to leave me with a chunk of time with no open accounts.  Which is going to tank my credit score.   

I don't mind dealing with the problems of not playing the game.  I was looking for some firsthand experience as to what it was like so I can prepare.  Or if it was impossible and we just needed to plan on paying cash. 


I'm so confused.   You don't loose your credit score just because you pay something off.   It follows you for at least 10 years after the last account is closed. 

While they say this is the case I can tell you from watching mine and my wife's score it drops rapidly when accounts are closed. 

I would suggest not closing any credit card lines as length of credit is a variable.    Check your score on Credit Karma and get a free credit report of all 3 bureaus.
Read some we info on improving scores and take action. 

See above posts about this. I do not have any credit cards and won't be opening any either.


Now for the real question --

You have a paid off house  -- can you explain to us why you feel you need a much more expensive house in 2-3 years?    Also explain why the new house you will purchase will be so expensive that you will need both the equity in your paid off house and 2 years of hard saving to get a 20% down payment?

Current house is 10 minutes from my job and 40 from DWs job.  She works for a government and her job location will not be changing.  I work for a family business that will not be moving either.  New house would be centrally located reducing or eliminating drive time.  We'd be moving in to a modest house in a decent area.  Ballpark pricing is 200-250k.  Our current house is in OK area and literally adjacent to two major freeways.  It was always intended to be a rental and will become one once we move to the new place.  We also plan to put enough down to keep our mortgage payment low enough for the rental income to cover most of it.  Will likely be closer to 50% than 20%. 

I really think your long term plan is to acquire unneeded debt.     Not a good plan. 

Plan is to have no debt. Including house

If it is a kid thing - as in we are having a kid and need a 2 bedroom instead of our current 1 bedroom  -- consider staying in the same area or simply hand building a 300 ft bed and playroom addition to your current home for about 10K in materials. 

Not this at all.  We have a very small house currently at about 800sqf. We had a roommate for years and never felt crowded.  A kid or two that we may theoretically have is not driving any of this. 

The school thing doesn't cut it with me.   If you have a kid in 3 years it would be 9 years total  until school time.   

Not a school thing either. Any kids will be home schooled once we retire.

In 9 years you could be retired and home school or at least save up enough to pay cash for the status symbol home and use your current home as a rental.

We might not be completely retired in 9 years but it will be close. We both work in jobs we love and are paid fairly well so we're not rushing to retirement

Please explain your thinking?

I figured this would come up.  Answers in bold and underlined.  Hopefully that clarifies things. 

So you're asking for advice on how to go hat-in-hand to get someone to lend you money, but you don't want to be "part of the system"?

Awesome.

If you don't want to be part of the financial (or at least credit/loan) system, save up and pay cash. Otherwise drop the hypocrisy and do what you need to do to prove to the people with the money that you're a good risk.

-W

I don't want to be part of the credit card or auto loan system.  Correct.  I'm not sure what about that makes me a hypocrite for asking about the process of getting a mortgage.  As I've stated previously in this thread, we are willing to save up and pay cash if that is required.  I was asking for anyones experience getting a mortgage with no credit score.  Clearly you have nothing to offer in that regard.  Thanks for stopping by. 

It's not my goal to get to zero/bad credit scores.  It's going to be a byproduct of other decisions.  I'm perfectly okay with that.  Just trying to get some insight from other smart people that might have done this before about what the process is going to be or if it's possible. 


KCM5

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Re: Buying house with no credit
« Reply #16 on: June 12, 2015, 11:36:23 AM »
I'm curious, do you have a debit card? Visa or Amex get fees every time you use it.

While I understand the urge to draw lines in the sand for moral decisions, it's also helpful to realize that ultimately they are just that - lines in the sand. They make us feel better but do nothing to change the system.

Jack

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Re: Buying house with no credit
« Reply #17 on: June 12, 2015, 11:39:04 AM »
IMO, Mortgage lending is just as much a part of "the system" as credit card lending is. If you're making this decision along moral lines, then having credit card accounts is no more inappropriate than having a mortgage.

Timmmy

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Re: Buying house with no credit
« Reply #18 on: June 12, 2015, 11:47:11 AM »
I'm curious, do you have a debit card? Visa or Amex get fees every time you use it.

While I understand the urge to draw lines in the sand for moral decisions, it's also helpful to realize that ultimately they are just that - lines in the sand. They make us feel better but do nothing to change the system.

I do have a debit card but I rarely use it.  I carry cash for most purchases. 

Can we just stop this discussion about credit cards?  It's a non-negotiable for us.  I'm aware that the CC companies aren't going broke based on my actions.  But that doesn't change that we aren't getting one.  Yep it's a line in the sand but it's one I'm not willing to cross.  Feel free to have a hundred credit cards for all I care. 

I'm not asking for sympathy here.  I made my bed and I'll happily lie in it.  I'm asking for insight in to the process of getting a mortgage with a low or zero credit score.  I even stated that if it wasn't possible, we'd save up and pay cash. 


mskyle

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Re: Buying house with no credit
« Reply #19 on: June 12, 2015, 11:53:55 AM »
I'm not asking for sympathy here.  I made my bed and I'll happily lie in it.  I'm asking for insight in to the process of getting a mortgage with a low or zero credit score.  I even stated that if it wasn't possible, we'd save up and pay cash.

I think you're just being crazy overdramatic here! You will have a perfectly adequate credit score three years from now, assuming you haven't got any bankruptcies or late payments on your record, and that your credit history is at least a few years old. You are worrying about being outside the system, but you are totally in the system, you have a mortgage that you've been making regular payments on.

waltworks

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Re: Buying house with no credit
« Reply #20 on: June 12, 2015, 12:02:58 PM »
Yeah, outside of merchant swipe fees (which should be 1/10 of what they are) the credit card/mortgage systems really aren't any different to me. I'm unclear on why OP feels CC's are immoral but mortgages aren't.

The bottom line is this: if you want to borrow money, you need to show the lender you are a good risk/will pay the money back. The people who do this regularly have instituted a system where you are scored for how you've behaved with credit in the past. The system isn't perfect but it does a fairly good job of identifying who is and is not a good risk. As such, if you want money, you should make some effort to make yourself look good in the system.

Refusing to play the game means refusing to play the game, full stop. Don't borrow any damn money. Otherwise you're just splitting hairs and harming yourself (while not harming "the system" one damn bit).

-W


Jack

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Re: Buying house with no credit
« Reply #21 on: June 12, 2015, 12:18:49 PM »
Can we just stop this discussion about credit cards?  It's a non-negotiable for us.  I'm aware that the CC companies aren't going broke based on my actions.  But that doesn't change that we aren't getting one.  Yep it's a line in the sand but it's one I'm not willing to cross.  Feel free to have a hundred credit cards for all I care. 

I can understand your stance on credit cards, I just don't understand why you think mortgage lenders are any better.

Timmmy

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Re: Buying house with no credit
« Reply #22 on: June 12, 2015, 12:20:02 PM »
Yeah, outside of merchant swipe fees (which should be 1/10 of what they are) the credit card/mortgage systems really aren't any different to me. I'm unclear on why OP feels CC's are immoral but mortgages aren't.

The bottom line is this: if you want to borrow money, you need to show the lender you are a good risk/will pay the money back. The people who do this regularly have instituted a system where you are scored for how you've behaved with credit in the past. The system isn't perfect but it does a fairly good job of identifying who is and is not a good risk. As such, if you want money, you should make some effort to make yourself look good in the system.

Refusing to play the game means refusing to play the game, full stop. Don't borrow any damn money. Otherwise you're just splitting hairs and harming yourself (while not harming "the system" one damn bit).

-W

If you can't comprehend the difference between the damage done by CC vs mortgages I'm not sure I value your opinion.

The bottom line is this: I will want to borrow money but I'm not willing to get a credit card.  Therefore, I'll go through the necessary extra steps to let those people determine my risk level.  I was wondering what those extra steps might look like.  Apparently that's too much to ask. 

Damn...  I remember why I hadn't logged in to this site in a while... 

iamlindoro

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Re: Buying house with no credit
« Reply #23 on: June 12, 2015, 12:28:48 PM »
If you can't comprehend the difference between the damage done by CC vs mortgages I'm not sure I value your opinion.

Look, I get where you're coming from, but you need to consider recent history too.  It wasn't excessive consumer credit that nearly completely destroyed the global economy, it was haphazard mortgage lending to unqualified buyers, lax verification of income and capability to repay the mortgage, loans extended to borrowers with poor or no credit, and the subsequent repackaging of those loans as low to moderate risk.  For all we know, you might be the most diligent borrower ever.  In light of recent events, however, I wouldn't want a lender to lend to you (speaking from a "global citizen" point of view) if your report showed poor or dormant credit.

Credit Card debt is harmful on an everyday basis in that it may, when improperly used, keep someone in a cycle of debt.  Totally agree with you.  But to suggest that mortgages aren't equally capable of damaging the individual or the economy just isn't right, in my opinion.

Damn...  I remember why I hadn't logged in to this site in a while...

It is always a risk when we post on discussion forums that the discussion won't follow the track he hoped it would, or that people won't fall in line to support our ideas.  That's why it's a free exchange of ideas/discussion rather than a paid yes-man service.  I would suggest that given where this discussion has gone, you might consider that others might have a point.  Or, at the very least, lighten up!  Nobody is putting you down, calling you an idiot, jamming a walletful of credit cards into your hands, or anything like that.  They're just disagreeing with your premise.
« Last Edit: June 12, 2015, 12:31:34 PM by iamlindoro »

mskyle

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Re: Buying house with no credit
« Reply #24 on: June 12, 2015, 12:34:38 PM »

The bottom line is this: I will want to borrow money but I'm not willing to get a credit card.  Therefore, I'll go through the necessary extra steps to let those people determine my risk level.  I was wondering what those extra steps might look like.  Apparently that's too much to ask. 
...

You've gotten answers... Probably there will be no extra steps at all, because you'll have a perfectly fine credit history, and if you run into trouble you should seek manual underwriting if possible. The answers just don't take as long to read as the arguments.

Daley

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Re: Buying house with no credit
« Reply #25 on: June 12, 2015, 12:38:38 PM »
IMO, Mortgage lending is just as much a part of "the system" as credit card lending is. If you're making this decision along moral lines, then having credit card accounts is no more inappropriate than having a mortgage.

There is most definitely a difference between secured and unsecured debt. Though I can appreciate Timmmy's stance on predatory vehicle loans and not wanting to participate in that despite it being secured debt due to the overall lack of better regulation and predatory interest rates, he raises valid points and his willingness to get a mortgage while not getting credit cards is hardly a hypocritical stance.