Approximately 30 million Americans cannot qualify for a home loan because their credit is too thin. It is not bad credit blocking them out of homeownership, but skinny credit!
When a mortgage professional says a credit report is “thin,” it means there is not enough information on it to properly judge the risk of lending.
If you want to borrow $300,000 to purchase a home, and the only account on your credit card is a $50 gas card, that is not enough information for the underwriter to go by in order to determine if you are risk-worthy of a $300K loan.
In fact, FICO reports that they cannot award a credit score if…
You have only one account.
You haven’t had credit long enough to judge a payment pattern.
You haven’t used credit in two years.
Ideally, you want to have one or two major credit cards (Visa or MasterCard) plus another account, such as a store card, gas card. Even better if one of your accounts is a closed-ended loan, such as a student loan or auto loan.
Having a mix of a closed-end loan + major credit card + one more account is ideal for earning a top credit score of 740+ in one year.
If you keep your credit card balance low compared to the limit, and pay the entire balance on your credit card each month, and pay all loans and credit on time every month, then it only takes one year to go from 0 to 740.
All of this vital information and more is in Build and Protect Your Credit Like the Pros.
When you know how the credit scoring system works, YOU are in control of your credit rating. And that is how it should be. Your credit report reflects your personal financial integrity, so make sure yours is TOPS!
