What are my best options if I don't have a lot of credit lines for housing loans?

I’ve been denied for a pre qualify loan by Bank of America for a house recently due to having insufficient credit lines. I do have a credit score that is good and everything else is fine. I think it is a bit silly to be denied just because of insufficient credit lines. Is there something I can do? I don’t have enough traditional credit lines right now either. This is very frustrating, but there has to be a way around this. Any tips or suggestions are appreciated. I’m thinking about using FHA.

2 thoughts on “What are my best options if I don't have a lot of credit lines for housing loans?

  1. Daniel Anderson

    The short answer is, with limited credit, your best bet might be an FHA loan for first time buyers. They only require 3.5% down (if I recall the number right), and you can qualify for their loan programs with a credit score as low as 580.

    The problem is that even if you were to add new credit lines (such as signing up for new credit cards, etc.), they still take time to have a positive effect on your credit. First, your score takes a bit of a hit with each new hard inquiry by a prospective creditor, then your score will dip slightly when a new credit account is first added.

    While your credit score will improve somewhat within a few months of adding new credit and you begin to show payment history on those accounts, your average age of accounts needs to be two years or older for the best effect, assuming you’re making all of the payments on time.

    A good happy medium is to have between 7 and 10 credit lines on your credit history, and to make sure it’s a mix of account types, such as store cards, installment loans, and credit cards, to show that you can handle various types of credit.

    Be careful not to add TOO much credit, because it affects your debt-to-income ratio, and that will have a negative effect on your ability to obtain mortgage financing.

    I really suggest that you look at some of the sites which offer free credit scores, because some of them provide great advice and tips on how to achieve what you’re trying to do. They also offer credit score simulators, which can help you understand how your score might change if, for instance, you add new credit cards, pay off existing cards, or take on installment loans. It’s well worth checking out.

    I hope this helps. Good luck!

  2. D Stanley

    Rather than trying to indirectly game your credit score, I would instead shop around and see if there are other lenders that will pre-qualify you with your credit the way it is today. BofA and other large banks can be very formulaic in how they qualify loans; a local bank or credit union may be more willing to bend the traditional “rules” and pre-qualify you.

    I’m thinking about using FHA.

    If you can put 20% down then a conventional mortgage will likely be cheaper than an FHA loan since FHA loans have mortgage insurance built-in while conventional mortgages typically don’t require it if you borrow less than 80% of the house’s value. I would shop around before jumping to an FHA loan.

Leave a Reply

Your email address will not be published. Required fields are marked *