Don’t Throw It Away

Jack and I had an older gentleman stop by the office and inquire about a mortgage recently.  He mentioned he was told he couldn’t get a mortgage by his long term Wisconsin based bank before we really even started conversing.  We started discussing his situation and the reason he was told no was because he had no credit score.  He mentioned his past history and said he had an 800+ credit score his whole life.  He said less than 2 years ago he sold his house, paid off all his debts, and closed any type of account with availability to borrow because he didn’t need it.  He had been living with family members but now wanted to buy another house of his own.  He came in asking specifically about a mortgage for a person without a credit score.

Long story short yes, we do “no score” mortgages at Select One.  That being said they are more expensive, have higher interest rates, and have a bunch more hoops to jump through for both borrower and loan officer.  We evaluated the potential of this for him and continued our discussion.  If you don’t have a credit score you basically have two options.  #1 being establish a credit score, this can often be done in 30-90 days; getting listed on a family member’s account or establishing a secured line of credit that reports to the bureaus are both good strategies to do this.  The second option is get a mortgage product that allows a no score borrower.  Unfortunately even bringing a co borrower on board for this situation doesn’t make it any easier.  Any no score product we’ve ever seen requires establishment and documentation of alternate trade lines and associated payment history to be evaluated on the borrower with no score.  This means we are looking for things like paying rent, paying utilities, paying internet, phone, etc.  Typically we need to see 3 of these things over a 12 month period showing responsible payment history and then we have jumped through the biggest hoop.  This guy didn’t have that, he was living with family and really had minimal expenses.   His only real option was to get back some sort of credit and re-establish a score.

Looking back I was absolutely floored that this guy had an exceedingly strong credit score and with only closing accounts it dropped completely off the board within 2 years (actually a little less than a year and a half).   I didn’t believe him at first and went ahead and tried a 3 bureau score of our own, partially because banks sometimes will pull a single bureau and that can result in one bureau showing no score and others having a score.   Sure enough, no score on any bureau.

Long story short is even if you don’t need it, keep it available.  The easiest time to borrow money is when you don’t need it and the most difficult (or sometimes impossible or very costly) time to borrow money is when you desperately need it.  I tell those working to rebuild credit the same thing, don’t tear up your credit cards and close all your accounts one the day you’ve paid them off.  Keep them open and lock them in a drawer if you don’t want to use them, better yet buy a tank of gas on one each month and pay it off on or before the due date.  Available credit/credit utilization is a major part of scoring and if you eliminate all your ability to borrow you moved your credit utilization much higher which negatively affects your score.