FHA Loan Advice for Those With Thin Credit
What is thin credit? It’s a term applied to credit reports that don’t have much in them-a short history of using credit, a longer history that has few credit accounts associated with it, etc. Thin credit is not an automatic barrier to FHA home loan approval, but in general you should take time to build up your credit file to prepare for a home loan.
This process can take time but it is definitely time well spent. What does Experian advise borrowers with thin credit to do? Here are three basic steps.
Apply for Credit, But not Too Much at One Time
Generally speaking it is a bad idea to open new lines of credit ahead of a home loan application. But if you have little credit history to show your loan officer, opening a new account and using it responsibly can help.
The Experian official site says opening too many credit accounts makes you look like a consumer who doesn’t know how to use credit; too many applications can hurt your credit regardless of whether those applications are approved or not.
Ask Your Landlord if Your Rent Is Being Reported to a Credit Agency
Yes, rental history can help boost your credit if you pay on time and have a history of doing so. But the catch is your landlord (or a third party) must report your rental payment history to the credit agencies. The Experian official site advises potential mortgage borrowers, “Talk to your landlord or property management company to find out if the report rent payments to the credit agencies. If they don't, you can sign up for a rent payment service such as RentTrack or PayYourRent.”
If your payment record in this area is spotty, you will need to come to the FHA loan application process with a minimum of 12 months of on-time payments for all rents; anything less can seriously hurt your chances of loan approval. This is especially true if the late or missed payments happen more than once.
Look Into a “Credit Builder Loan”
Experian advises borrowers with thin credit to ask a loan officer about the possibility of a credit builder loan specifically designed to help build credit. Experian advises, “...look for one with a relatively short term, like 24 months or less. You should also make sure that the lender will report your payment activity to one of the three national credit bureaus.”
These are not the only methods you can use to build up your credit, but remember that you should always proceed carefully, don’t overdo credit applications, and always pay on time.
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