• Getting a Home Loan without a Credit History

    Home Loan BYTES FROM OUR KITCHEN

    It is possible to go through life without applying for small loans or other lines of credit such as credit cards. However, most of us cannot escape larger expenses, particularly a home loan. Investing in a home is not a small expense, it is one of the most pivotal as well as expensive investments in our lives. Therefore it would be heartbreaking to be deprived of a home loan simply because you do not have a credit history.

    What happens to your credit rating when you do not have a credit history?

    Your credit score is the best judgement of your probability of defaulting on a line of credit. A score of “AA” if the most ideal score you can hope to get on as your credit rating which implies that you have the least probability of defaulting. On the other hand, a score of “HH” implies that you have the highest probability of defaulting.

    So what happens when you do not have sufficient credit activity? If you do not have a history of credit card usage or loan applications etc. you will receive an ungraded score of “CX”. This score implies “Insufficient Credit Activity”. There is very limited information on your accounts status history to derive a credit score.

    Does an ungraded credit score matter when applying for a loan?

    In Singapore, banks and financial institutions usually do not check your credit score if you are applying for a loan amount of S$500 or less, however this is not a hard and fast rule. Given that you want to apply for a home loan, the loan amount is definitely not going to be small. Banks usually use your credit score to determine how much they are willing to lend you in the form of their home loan. This is where your credit score matters. People who have higher credit scores tend to get larger loan quantum and better interest rate packages.

    If you are applying for a home loan with a credit rating of “CX”, it is possible for a bank to reject your home loan application. This is mainly because they are uncertain if you will make timely payments on the loan. They have no way to determine if you may default on the loan. You will be seen as a potentially risky customer and the bank may choose not to do business with you.

    Getting a home loan without credit history

    You may not have credit history at the moment, but there are ways to remedy that in order to get a home loan.

    Here are few pointers to get a home loan with no credit history:

    Request your landlord and other service providers to report your payment history to the credit bureau:

    If you are living at a rented place, then you can request your landlord to report your timely rent payments to the credit bureau. You can also request your service providers to write to the credit bureau regarding your utility bill payment pattern. This can add weightage to your credit report because lenders want to assess your repayment capability from your credit score and report. Therefore, even if your credit score is ungraded, your credit report will have information regarding your payment history and make your application more desirable for acceptance.

    Consider taking a loan from a credit union:

    Many of us shop for home loans before making the final decision. However, many a times, we fail to include credit unions in our search list when looking for loan options. In addition to offering low interest rates and fees on their loans, credit unions are more likely to approve your home loan without a credit history when compared to banks and other financial institutions. This is because credit unions take a more personal approach when evaluating your home loan application compared to banks. They are not bound by highly stringent rules as they are usually non-profit organizations whose main goal is to provide financial products and services to their members. So, credit union members who are more likely to get rejected for home loans by banks have a better chance of getting an approval from their credit union.

    Credit unions have been established to provide financial services more easily and at competitive rates to solely benefit their members. Hence, if you are not a part of a credit union in Singapore, you can always apply for a membership first and then apply for a home loan. Many credit unions also offer you the chance to join their organization and apply for a loan at the same time.

    Apply for a credit card to establish history:

    It is not an absolute necessity that you need to have a longstanding credit history in order to apply for a home loan. There are other factors such as your income, age, citizenship, etc. that will be taken into consideration when evaluating your home loan application. Your lender uses your credit report and score mainly to assess your repayment capacity and payment pattern/history such as whether you make timely payments, whether you have missed payments or have a habit of making late payments, etc.

    Therefore, you can apply for a credit card and start using it only for essential payments to add some value to your credit report. By making full outstanding payments in a timely manner for a few months, you will see your credit score improving and your credit history building. You can always choose to stop using your credit card once it has served your purpose. With a better credit score, you are more likely to get your home loan approved if you have met the other eligibility criteria of the bank.

    Applying for a home loan without a credit history is not an easy way to get an approval, however, at the same time, it is also not impossible. If you play your cards right, you can definitely get a home loan even with an ungraded credit score.

    Finally, if you wish to boost your credit score, here are some tips to help you:

    • Make timely payments on all your open lines of credit.
    • Do not make multiple loan/credit line enquiries over a short period of time as each enquiry will be recorded on your credit report.
    • Do not have too many open lines of credit.
    • Do not default on your payments, miss payments or get into the habit of making late payments.

    If you have been unable to get a home loan without a credit history, then use these tips to build a better credit score before reapplying for your loan.

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