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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308447  
Subject: Re: NO credit - 2 questions Date: 5/24/2012 7:38 PM
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A family member attempted to get preapproval for a mortgage recently. He was informed by the bank that he has NO credit on file at the 3 major credit bureaus.

So he's still looking, and hasn't made any offers yet?

This family member has been using a credit card for the past 15 years - paying the balance in full each month. Long story short. In 2005, Citi changed his personal credit card to a business credit card without his knowledge. (In 2005, he was told by phone that there was suspicious activity on the 1st card. That credit card account was cancelled and a new account opened (presumably, the business credit card.) And as everyone here probably already knows, the business credit card does NOT report to the 3 major credit bureaus. UGH.

Has he asked Citi to change the credit card back to a personal card and report on the history since he opened the original account? Please note - a single credit card account is still going to be a very thin credit history, and may not qualify him for the best rates. Most mortgage lenders require at least 2 lines of credit on a credit history to qualify for a mortgage loan. But getting Citi to correct this will be a step in the right direction.

Further, he paid cash for a used car. No loan history there either.

Can he take out a loan on the car? Or does he have a savings account that he can pledge to a secured savings loan?

1. Add him as an authorized user or joint owner on ONE of our credit cards. Comments?

Adding as an authorized user may help, but it may not. Stricter credit scoring criteria have been implemented to prevent people from purchasing the use of others credit history as authorized users, but the details on those criteria are not public, so it'a hard to tell if adding him as an authorized user will help.

Additionally, if you want to help him qualify for a mortgage, you may need to add him as an authorized user on 2 accounts, if he can't get the Citi error corrected - see the commentary on thin credit files and qualifying for mortgages above.

Unless you each want to be legally responsible for the total debt on this card, adding him as a joint owner is a BAD idea.

The only worse idea would be 2. Add us as cosigner for preapproval for his mortgage - and cosign with him for a mortgage when that time comes. Is this possible? I would consult an attorney for input before cosigning. Comments?

As a cosigner, you are legally responsible for ensuring that the mortgage payments get made, and if you want to ever borrow money for anything else again, the mortgage payment will reflect on your debt to income ratio, making it less likely that you will qualify for any loan you are applying for. Additionally, if he misses a payment for any reason, the delinquency will be reflected on your credit report, too.

Plus, as just a co-signer on the loan, without an ownership interest in the property, you have all the liability for the loan, and own none of the asset that secures the loan. That's a really bad position to be in.

3. OR, should we plan to take out the mortgage and use him as a cosigner?

Again, see the comment on having the liability for the loan without owning the asset that secures the loan. You would be better off buying the house yourself, and letting him do a lease to own.

How can I best jump start his credit history and score?

What is the best way to help him get the best mortgage rate?

It seems to me that we are either going to have to cosign and/or sign as primary on the mortgage.


Again, you signing on the mortgage, either as co-signer or primary, is a REALLY BAD idea unless you are actually buying the house yourselves. And would you even qualify for the mortgage, considering any/all debts you currently have?

Actually, the best way for him to get a mortgage would be to look into an FHA loan, qualifying with alternative credit such as his rent payment history, utility payment history and business credit card history. If the bank did not suggest that to him, he needs to get another lender.

And, for anyone else who is thinking about buying a house - this is one of the reaons that you need to ensure your credit score/history is correct at least 6 months - 1 year before even starting to look for a house, so that you have time to get any issues like this corrected. You can check your credit history at each of the 3 major bureaus for free once a year by using www.annualcreditreport.com Take advantage of this 6 months - 1 year before starting to look for a house. (Note - residents of some states can get their credit reports for free more often than once a year based on their state laws.)

AJ
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