Most people know that if you’ve got bad credit, it can be harder to get a mortgage – but what if you have no credit history at all? Well, the good news is there are still lenders who will work with you to help you get a loan. Here’s what you need to know.
How is my credit history created?
Your credit history or credit report (as it's also called) is created the first time you apply for credit. This could be for a credit card, phone plan, personal loan or even for an interest-free purchase you made in-store or online. Then, whenever you make a new application for credit, a further “hit” or notation is made on your credit report and this remains on your file for five years.
What is credit history?
When deciding whether to approve you for a loan or not, a lender will review your credit history to help evaluate your personal financial management skills. Your credit history will show things such as how much credit you’ve applied for in the past and whether you have any missed payments listed on your report. If you have unpaid defaults listed on your credit report, some lenders may consider you too risky and decline any new loan application.
If your credit report indicates that you have applied for credit in the past but there are no negative notations indicating poor credit behaviour - then that’s a tick in the eyes of the lender.
So, what if you have never had a credit card, personal loan or utility bill in your own name? Many people might think: “Well, isn’t it a good thing that I’ve never had any debt?” Well - yes and no.
Can I get a mortgage with no credit history?
Yes, it is possible to get a mortgage with no credit history - but be prepared to provide some additional information to your lender.
Firstly, the lender will want to firmly establish that you are who you say you are. If you don’t have a track record of ever applying for credit, a lender will want to satisfy themselves that this is in fact true. Potentially you will need to provide additional identification documents to satisfy this line of enquiry with your lender.
The other thing is, that without any previous credit history, you don’t have evidence to demonstrate that you can be responsible when it comes to paying off debt. And in lending, previous repayment behaviour is considered a pretty big indicator of future repayment behaviour. That’s why your credit history and credit report are so relevant when it comes to applying for a loan. So, the question then becomes, how else can you support your new loan application and give the lender comfort that you are in fact, a good risk?
How do I get a mortgage with no credit history?
To get a mortgage when there is no credit history, you will need to demonstrate that you’re responsible when it comes to managing money. This could be by providing a bank statement that shows a regular savings pattern or that you’ve made consistent rental payments over an extended period of time.
Of course, you will also need to provide evidence that you have a stable income and can afford the new loan repayments. That’s a given. Also, the larger your pool of savings and the more deposit monies you can contribute towards the purchase, lowers the perceived risk and is viewed more favourably by the lender. What you want to be doing is building a picture in the eyes of the lender, that you are a good risk and that you’re creditworthy.
For first-time buyers in particular, using the services of a good mortgage broker can be a smart move. Mortgage brokers are very familiar with the requirements of different lenders and will be able to step you through what documentation you will need, even if you have no previous credit history.
What are mortgage loan requirements with no credit history?
Different lenders have different risk appetites. Not all lenders will accept a borrower who has credit history issues. That’s why it can be a good first step to seek out a trusted mortgage adviser. A mortgage broker will be able to recommend a lender based on your personal circumstances, needs and requirements. They will be guided by how much money you have saved, the source of your deposit funds and your income levels as well as employment history.
Most mortgage brokers will also be able to help you access a copy of your credit report and help answer any questions that you might have relating to it. If you’re unsure about the state of your credit report, you can also access a free copy at mycreditfile.com.au. Understanding what information lenders will see about your credit history, is a very useful first step.
How do I develop a good credit history?
If you have no credit history as of now, you might like to consider building one! Some simple ways to do this include:
Putting a mobile phone plan in your name
Putting utility bills in your name, such as water, electricity or gas
Taking out a credit card with a small credit limit
In all cases, it is vital that you make payments on all of the above on time. One way to be sure you don’t miss any payments is to make a budget and set up automatic payments from your bank account.
Do I need a mortgage broker if I have no credit history?
As already discussed, speaking with a trusted mortgage adviser is a great first step if you are venturing into the property market for the first time. A good mortgage adviser should be able to provide you with transparency around how other customers have rated their performance. It’s important you can trust your mortgage broker to look after you. After all, buying property is a big step and not something we do every day. Reach out to a Liberty Adviser today to learn more about how they can help you get a loan with no credit history.