What Happens When You Need a Loan but You Don't Have Any Credit?
"Visa announced this spring that spending on Visa debit cards in the United States surpassed credit for the first time in the company's history," reports Nancy Trejos. "In 2008, debit payment volume was $206 billion, compared with credit volume of $203 billion."
I don't own a credit card. Never needed one. By the time I was old enough to carry plastic, the convenience of the card had been cleaved from the possible dangers of credit. The debit/ATM card allowed me to buy goods without holding cash, and did it without exposing me, particularly as a teenager, to the temptations of credit. As I got older, I had the money to live within my means, and so I did so. I figured this meant I had a good credit score. It wasn't until a few years ago, when I tried to open a Banana Republic credit card to get a few bucks off some fall purchases, that I realized it meant I had no credit score. Not a bad credit score. No credit score.
Then I tried to buy a house.
Without a credit score, Fannie Mae and Freddie Mac wouldn't hold my loan. That meant most big banks wouldn't loan to me at particularly favorable terms, as they'd have to carry the loan themselves. My other option was going through the Federal Housing Administration, which meant that the banks would require that I pay extra for private mortgage insurance.
Through all of this, I had all the characteristics of a good borrower. No debt. Steady job. Income in excess of my needs. Co-signers if I needed them. But I didn't have a credit score.
Luckily, I work with a lot of people who understand the loan system. A colleague explained that small banks hold more of their loans, which gives them more flexibility in assessing credit risks. It's more like going to an old-style bank, where you dress up in your nicest suit and try to present yourself as an upstanding and responsible citizen. I called up a credit union, and within a few days, I had my loan underway.
I tell the story for two reasons. First, when I was Googling "home loan no credit," I didn't get much that was very helpful. Hopefully, this will be. Second, Trejos's story suggests that a lot more people will be falling into my situation soon. The hangover from the debt bubble is leading to a preference for debit cards. A lot of young people will be started on a debit card rather than a credit card, and many of them will probably never switch over. That'll be fine until they need a credit score for a major loan.
Photo credit: By Mark Lennihan — Associated Press
October 9, 2009; 12:51 PM ET
Save & Share: Previous: Bipartisanship Lost
Next: The Congressional Budget Office and Malpractice Reform
Posted by: WrongfulDeath | October 9, 2009 1:16 PM | Report abuse
Posted by: luko | October 9, 2009 1:23 PM | Report abuse
Posted by: bmull | October 9, 2009 1:29 PM | Report abuse
Posted by: lilybelle2 | October 9, 2009 1:33 PM | Report abuse
Posted by: constans | October 9, 2009 1:49 PM | Report abuse
Posted by: WarrenTerra | October 9, 2009 2:05 PM | Report abuse
Posted by: tomveiltomveil | October 9, 2009 2:13 PM | Report abuse
Posted by: constans | October 9, 2009 2:26 PM | Report abuse
Posted by: Drew_Miller_Hates_IDs_That_Dont_Allow_Spaces | October 9, 2009 2:52 PM | Report abuse
Posted by: tomtildrum | October 9, 2009 3:33 PM | Report abuse
Posted by: wkiernan2 | October 9, 2009 8:30 PM | Report abuse
Posted by: shanehuang | October 9, 2009 9:34 PM | Report abuse
Posted by: pj_camp | October 9, 2009 11:47 PM | Report abuse
Posted by: simpleton1 | October 10, 2009 12:06 AM | Report abuse
Posted by: punchaxverulam | October 11, 2009 1:01 PM | Report abuse
The comments to this entry are closed.