Low vs. no

Is a low credit score the same as no credit score? Dave explains the difference to Laura, and offers advice where buying a home is concerned.

QUESTION: Laura and her husband want to buy a home, but they both have low credit scores and can’t secure a loan. They’ve heard Dave talk about getting a mortgage with no credit score, and they’re wondering if no credit score is the same as a low credit score.

ANSWER: No, it is not. No credit score means you don’t have any credit or your credit score is “indeterminable.” A low credit score indicates you’ve had — or still have — debt in your life, and you haven’t done a good job of paying creditors on time.

Two things will help solve the problem of having a low credit score. One is time. If you’ve had instances of late payments from years ago, time will help heal that to a degree. The older late issues become, the less they count against you. But my guess is you two probably have some bad debt. By bad debt, I mean things that were never paid, or accounts that are in collections.

If that’s the case, you need to contact those people, and settle those debts as quickly as possible. Close the accounts, too. I always advise folks to first be debt-free and have an emergency fund of three to six months of expenses set aside before buying a home.