April 12th - Worried About Thin Credit? Get Back On The Grid!

Thin Credit? Get Back On the Grid!

People who pay for everything with cash are at a major disadvantage when it comes to getting a bank mortgage. Banks make loans based on borrowers’ credit history, which helps determine lending rates and other parameters of those loans. Those folks who refuse to use credit cards or other forms of borrowed (and re-paid) money are essentially invisible—“off the grid” as Steve puts it—and therefore are unknown risks to lenders. Most banks will simply balk at offering mortgages to thin-credit individuals.  The irony is that many thin-credit individuals are probably in healthy financial shape and may be more responsible than others when it comes to managing their money.

Breaking out from thin-credit status to become someone whom lenders would be willing to work with is not terribly complicated.  Opening credit cards and establishing a track record of both using and paying them down can provide a fairly quick fix. But even folks who can’t abide the idea of credit cards have options: paying and documenting rent and other bills and routine expenses (utilities, child care, insurance, cell phone, and cable bills, etc.) with checks can go a long way towards establishing the kind of credit identity that lenders require.  One of the main reasons people are drawn to the cash-only lifestyle is the anonymity and privacy it provides, but these benefits must be abandoned if you want to take out a mortgage.  Steve and Terry’s bottom line: get back “on the grid” with credit cards and/or checks two or three years before you plan to buy a home.