Can You Buy a House Without a Credit Score?

When I was a Realtor, I worked with a lot of first-time home buyers, and one really common problem I had to deal with was buyers without a credit score. These were often otherwise very-well-prepared buyers who had considered their big buy very carefully, but they'd simply never bothered to get a credit card or maybe only had a single credit line, like a student loan.

Inevitably, the credit would be run and we'd discover that we had a problem. But as it turns out, having no credit score is a lot better than having a bad credit score when you're trying to buy a house. It's an issue that can be overcome easily if you're willing to do a little bit of extra leg work to help your lender establish your creditworthiness.

How do people not have credit scores?

Inevitably, when this subject comes up, someone asks me how someone could not have a credit score. It's easy, really. There are people out there whose understanding and relationship with credit is such that they simply never opened a credit card, never had a car loan, never borrowed a nickel to buy something they wanted. They simply saved the money and waited until it was time.

But it's harder to buy a house without borrowing, and that's where they run into trouble. Fortunately, a lot of bankers, like those on our curated list of mortgage lenders -- click here to review the full list -- are sympathetic to the situation and will work with you to create a credit file.

What is non-traditional credit?

If you don't have a credit score and you want to buy a house, you'll have to have a credit file developed for you, much like the ones usually provided by credit reporting agencies like Experian or Equifax. Sometimes, this can come from an alternative financial service, but often, it's a job for your bank's underwriters.

They'll ask you for copies of bills and bank statements to prove you've made payments to certain kinds of accounts. The number and type will vary based on the lender and the type of mortgage you're pursuing, but here are a few common alternative credit types that can be used:

• Rental housing payments
• Telephone or cellphone bills
• Utility bills, including cable and internet
• Car insurance premiums
• Rent-to-own agreements
• Payment agreements for medical bills

You can also sometimes use a savings account that you've been contributing to religiously for at least 12 months that has shown an increasing balance over time. This means it's better to be a "no-touchy" savings account, so if you have to tap yours regularly, it may not be eligible.

Does having no credit score mean you'll get a higher mortgage rate?

If you're considering buying a home, but don't have a credit score, don't worry. Your lender will use your non-traditional credit to build the very best credit score it can on your behalf. So as long as your payments have all been made on time, and the quality of your credit references is solid, you'll end up with a credit score that is considered "good" at the end of the process.

The TL;DR of that is that if you have an underwriter create a credit score for you, you'll be treated just like anyone else with the same credit score -- there's not a penalty for having no credit when you walk into a mortgage lender.

That means you can check mortgage rates on pages like this one just like anybody else and expect your mortgage offer to be in the general ballpark.

No credit score? No problem!

Having no credit score won't stop you from reaching your goals of homeownership, so don't let that be the thing that keeps you from calling your favorite lender to get prequalified. Do expect it to take a little bit longer since you'll need to provide a great deal more information to help the lender build your credit file from scratch, but when you're done, you'll be treated just like any other mortgage customer.

So whether you've never had credit, or you've simply not had new credit since a bankruptcy, you can buy your own home -- and there's no time like today to get started.