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Ask Dave

You're In No Man's Land

John wants to buy a house, but his credit is low. What does he do now to get a mortgage?

QUESTION: John in Memphis wants to buy a house, but his credit is low. What does he do now to get a mortgage? Dave thinks he’s in a no man’s land when it comes to his credit score and suggests that John may want to rent for a while.

ANSWER: You’re kind of in a no man’s land. If you have no credit due to paying cash, you’re bankable for a mortgage. If you have a great credit score, you’re bankable for a mortgage. What will happen with your credit bureau is once you close all your accounts and you have no credit—no active accounts at all—within about six months to one year, your credit score will become zero, which is actually where you want to be rather than where you are. Where you are is tough.

It’s going to be difficult to get a mortgage where you sit today, and there’s not anything that makes the credit score zoom up or zoom down. You may have to rent for six months while this credit score disappears.

I would recommend you contact Churchill Mortgage, because they’re used to working through people without a high credit score. I’m not saying they can get you a loan. I don’t think they can, but maybe they can pull a miracle off because you’re stuck in this no man’s land.

If you want to build credit, you’ve actually received the correct advice. I’m not in the business of helping people build credit. I’m in the business of helping them build money. Credit is not an indication of money. As a matter of fact, it’s quite an opposite indication. I disagree with the advice overall. Either way, you can get the house. Three months from now, I don’t think this is going to be fixed with either set of advice. They just don’t move that fast.

Five or six months from now, you will likely have a zero score. There’s no way to tell that for sure, because the details of how a credit score is determined are not revealed in terms of speed. We know what the components are of the algorithm. They all have to do with borrowing money. What we don’t know is how quickly it unfolds with FICO. I decided to quit trying to manipulate FICO and quit trying to make them say I’m smart. Instead, I’m just going to declare they’re dumb and walk away. That puts you where it puts you.

My advice to you would be to get with a mortgage company like Churchill that’s not FICO-enamored and try to figure out which way gets you into the house faster, but I’m guessing it’s at about the same speed.