No Credit? Yes, that is a problem!

If you are a first time home buyer, you probably have a lot of questions.  I have buyers who also come to me with many questions because it has been so long since they purchased their first home, that they don't remember the process!

One of the first hurdles to buying a house is typically your credit score.  It's been awhile since I have touched on this, so a quick review of credit!

Your credit score is basically a snapshot of your financial stability.  Do you have steady income and pay your bills on time?  Chances are, your credit is okay.  Have you had bills go into collections, or have delinquent accounts?  That will negatively impact your credit.  But what exactly is in a credit report?  

Let me break it down.

Your Personal Information - Your credit report will contain your full name, your social security number, current and past addresses, the name of your spouse, etc.  It is very important to verify this information!  Are you by any chance a Junior, the III, or Senior with a parent or child of the same name?  It is doubly important as this information can frequently get mixed up between generations.

Your Current Accounts -Your mortgage and car payments, credit card payments, etc. that you are currently receiving bills on, are considered your current accounts.  They will either be in good standing or delinquent - check to make sure the information is accurate.

Your Closed Accounts - Remember that card you signed up for in college to get the free T-Shirt?  Or the card you used to collect airline miles on and then stopped using after your round trip tickets were used?  Those closed accounts give a picture of your past history, stability, and how reliably you made those payments.

Negative Information - If you have had a bankruptcy, court judgement or past due amounts reported to the credit bureau, those will show up on your report.  These items may negatively impact your credit, so again, check for accuracy.

Credit Inquiries - If you are checking your own credit, that is a soft inquiry and won't affect your credit score.  If you have multiple credit inquiries by other sources (car loans, etc.) this could be a red flag.  Typically, if you are shopping for a home mortgage and check with several lenders in a short amount of time this is forgiven - they assume you are looking for the best terms.

Lack of Credit - This isn't so much something ON your report as something NOT on your report.  I have had several younger buyers that do not have established credit.  That sounds bad, but in the real world it is good.  It means that they are paying cash for things, and have no credit cards in their names.  The problem is that in order for a bank to consider you a good candidate for debt repayment, they need to see a history of you making payments.  My best advice is to open a credit card, use if for gas only, or something similar, and pay it every month.  This gives you a start to having positive credit, and to showing a lender that you are ready for homeownership!

I hope this helps!