June 7, 2013
A reader asks, “I have a credit score of 662, but I have no outstanding credit. I do not have any credit cards open, nor a car loan (loan was open in 2003)I have 0 installment loans, 0 credit cards, 0 retail cards. How can I get approved for a home loan? I have had credit in the past, but closed my accounts when I moved out of the country in 2001 and never got any credit cards again.”
FHA loan rules address this in HUD 4155.1 Chapter Four, Section C. That section says in part, “Past credit performance is the most useful guide to
• determining a borrower’s attitude toward credit obligations, and
• predicting a borrower’s future actions.
Borrowers who have made payments on previous and current obligations in a timely manner represent a reduced risk. Conversely, if a borrower’s credit history, despite adequate income to support obligations, reflects continuous slow payments, judgments, and delinquent accounts, significant compensating factors will be necessary to approve the loan.”
But not all borrowers have credit card debt or a history of revolving debt. In these cases, including the situation mentioned in the reader question, the FHA rules state the following:
“The lack of a credit history, or the borrower’s decision to not use credit, may not be used as the basis for rejecting the loan application.”
That likely comes as a relief for those who don’t have an established credit history. Chapter Four Section C advises the lender, “Some prospective borrowers may not have an established credit history. For these borrowers, including those who do not use traditional credit, the lender must obtain a non-traditional merged credit report (NTMCR) from a credit reporting company, or develop a credit history from
• utility payment records
• rental payments
• automobile insurance payments, and
• other means of direct access from the credit provider”
Borrowers with little or no established credit history should begin gathering information about the records mentioned above and ask their loan officer how such information should be delivered in order to properly complete the FHA loan application.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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