When it comes to buying a home, it might seem like minimal credit would look good to lenders. But, the opposite is typically true. Among other things, lenders are looking for a credit history that illustrates a pattern (hopefully a good one!). If you don’t have enough credit to satisfy their requirements, you could be out of luck.
“The first thing most lenders look at when you want to buy a home is your credit history. Most people have traditional lines of credit such as credit cards, auto loans or a current mortgage that form a track record of how they manage debt,” said NerdWallet. “But if you have no credit history or what’s sometimes called a nontraditional credit history, which is one with no credit card debt or other kinds of loans, it might be harder to establish a set of credit stats. That could make it tough to find a mortgage lender who will work with you.”
A just-launched program from Experian intends to help would-be buyers become better qualified. Called Experian Boost, the free, online platform allows consumers to “instantly influence their credit scores” by using data from telephone and utility payments. “It’s a first of its kind program designed to give more consumers access to credit,” said Experian.
How it works is: consumers grant permission to Experian Boost “to connect to their online bank accounts to identify and access utility and telecommunications payments,” per the company’s release. After the consumer verifies the data and it is added to their Experian credit file, their FICO score is immediately updated.
“The amount a consumer’s score will be boosted depends on many factors, including current credit history,” Rod Griffin, Director of Consumer Education for Experian, told us. “Ultimately, the mortgage lender will make the final approval decision. The new self-reported accounts, or trades, will flow through the tri-bureau process for mortgage underwriting, giving lenders the view of new trades that were not visible before Experian Boost.”
According to the company, those with “thin credit files (less than five trade lines) and scores between 580 to 669 will benefit the most from Experian Boost.” Testing of the platform on a sample FICO ® Scores showed an increase in two of three credit bureau scores and:
• “10% of thin-file consumers became scoreable
• For consumers with a score below 680, 75% saw an improvement in their credit score
• 14% of consumers with a credit score at or below 579 moved to a near prime score between 620 – 679
• Depending on credit tier, 5-15% moved into a better score category”
The benefit to homebuyers is twofold: 1) Those who may not have been able to qualify for a home loan otherwise may end up with scores that are high enough to satisfy lenders; 2) A lower interest rate may be available for those who previously had subprime scores. This can save them tens of thousands of dollars over the life of a loan. “According to Credit Builders Alliance, having a subprime credit score will cost the average consumer approximately $200,000 more over the course of their life,” they said.
You can sign up for Experian Boost on their website.