Perhaps you pride yourself on having literally NO credit. Like, you’ve never had a credit card, and you operate solely with cash. You may think you’ve set yourself in a strong buying position, and surely you have a great credit score. I have some bad news for you: no credit means you have NO CREDIT–no credit history, no credit score, and therefore, a slightly more challenging road ahead of you to get approved for a mortgage loan.

First of all, what is a credit score?  According to Investopedia.com, it is a statistical number that evaluates a consumer’s creditworthiness and is based on credit history. Lenders use credit scores to evaluate the probability that an individual will repay his or her debts. A person’s credit score ranges from 300 to 850, and the higher the score, the more financially trustworthy a person is considered to be.

Credit Score Factors

  1. Payment History – this accounts for 35% of a credit score and shows whether a person makes payments on time.
  2. Total amount owed-this accounts for 30% of a credit score and takes into account the percentage of credit utilization (how much available credit is being used).
  3. Length of credit history—this accounts for 15% of a credit score, with longer credit history being considered less risky.
  4. Types of credit—this accounts for 10% of a score and shows if a person has a mix of credit, such as installment credit (car loans or mortgage loans) and revolving credit (credit cards).
  5. New credit & inquiries—this accounts for 10% of a score and factors in how many new accounts a person has, as well as new credit inquiries. Since a new line of credit doesn’t display your history of timely payments and good behavior, it poses a little more risk for a lender, which is why your score may be impacted negatively.

If you have no credit, I recommend reviewing the factors above and taking some steps to begin establishing credit. It may take some time (assume at least 12 months), but “the journey of a thousand miles begins with one step.”

If your credit has been consistently low, it will be worth doing what you can to ensure your payments are always made on time. Get your current balance well below 30% of your max…and keep it there.  Do what you can to utilize your open lines of credit really responsibly, and you will begin seeing your numbers move upward.

Circling back to inquiries, I’ve heard some scare tactics come into play by salespeople, stating that if you shop with other lenders and allow a hard inquiry, your credit score will be negatively impacted again. I’d like to assuage some of your fears.

If you get a hard inquiry, yes, your credit score will likely drop 5-10 points; however, when there are multiple inquiries for the same installment debt, such as a mortgage loan, the additional inquiries will not have an additional negative impact on your score if it is done within 30 days (some say 45 days, but I err on the conservative side) of the original inquiry. It may not be a great idea to get your credit pulled with 10 different mortgage lenders (it would be an exhausting process consulting with that many mortgage companies anyway!), but you don’t need to fear comparing offerings of a couple different lenders, if you are so inclined.

I hope you learned something new!  I want you to feel empowered to move forward with important financial decisions.  If you have any questio