Wednesday, March 12, 2008

We Want To Buy Now But Have No Credit … Is There Any Hope?

Indeed there is. Historically loan approval was based largely on borrowers' credit scores, which are based on formulas that take into account things like debt levels and loan-payment histories. Lenders are looking more and more at other factors, like rent and utility payments, to determine whether potential borrowers will make good on their loans.

This was begun by the financial services industry so it could make loans to the 50 million immigrants, young adults and seniors with little or no credit history. The slowing economy and soaring default rates have led lenders to use these tools to evaluate the credit-worthiness of the most every borrower. Their expanded use has been good for those with little or no credit as many companies have improved their systems and confidence in these evaluation systems.

Experian Group Ltd. recently announced an alternative credit score to help lenders get a better picture of how those with little or no credit might pay back a loan. TransUnion initiated a simlar product last summer, and Fair Isaac Corp., of FICO score fame, broadened its Expansion scoring system late last year to include more information about monthly rent, utility payments, etc.
The credit bureaus now rely on a combination of their own data, as well as third-party databases. TransUnion and Experian have teamed up with L2C and eBureau LLC, which specialize in collecting and analyzing alternative payment data. Equifax Inc.'s MarketMax pulls information from electronic database LexisNexis.

The new scoring programs can be very good news if you pay your bills promptly but haven’t established a credit history. Historically, you would have been ignored because the lender had no way to evaluate the risk of making a loan to you. The typical mindset was that you were subprime … ironically for paying cash and on time. Lenders are now recognizing that such consumers afford the lender a similar range of risk as those with traditional credit scores.

Our Advice: Whether you have no credit history, are coming up for a reset on your loan, or are pricing a new loan… pay your bills on time, and don’t write bad checks. There are services available like Pay Rent, Build Credit, Inc., PRBC, that specialize in collecting rent and bill payment information. They will look at how you pay your household bills like rent, phone, auto insurance, day-care bills, etc. You can build a decent credit score with them that will allow you to buy now while prices and interest rates are down. No money down? Don’t believe what you are reading … there are good 100% loans available – we’ve recently closed with them. Check with a lender to see what it will take for you to buy a home – you and your family may be in for a wonderful surprise.

Don't be surprised if a lender wants to know if you pay your rent on time or bounce checks before it will make you a loan or reset your existing loan … yet another sign of our changing times.
Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, , email us 775-781-5472.

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