Sometimes it seems like the only thing worse than having bad credit is having no credit at all. Well with the VA loan there’s an opportunity for veterans without an established credit history to become homeowners, and I’m going to give you all the details.

Though it’s not hard to build credit (assuming you know where to start), it’s not a quick process. It takes time to establish a credit history, and your timeline to get into a home may not allow enough time for you to build a sufficient credit profile.

Fortunately, the VA has some alternatives to traditional credit that they will allow lenders to observe to determine your creditworthiness. Beware of lenders who say you must have a credit score to get a VA loan. This is not accurate. 

In fact, the VA Handbook that lenders are required to follow specifically states that the absence of a credit history should not be considered an adverse factor. So if a lender tells you otherwise that is their particular lending institution’s rule, not the VA’s.

If you so happen to be a veteran that has routinely used cash instead of credit lenders can observe your payment history on the following items:

1. Rent

2. Utilities

3. Insurance (renter’s and/or auto)

4. Cellular phone

5. Cable/Internet

This list is not all-inclusive, but these are the most common bills used to establish a payment history for a veteran that lacks a credit score.

In addition, it is possible to have your spouse’s credit considered in place of your lack of credit. At the veteran’s request the lender can use the spouses credit report to help determine the veteran’s creditworthiness. 

However, the veteran has to be able to demonstrate why the spouses credit report accurately reflects their own creditworthiness. Though this may seem a little subjective, it is allowed by VA; and should be explored by veterans that don’t have a credit profile.

Be mindful that underwriters will be looking to see that you pay these bills on-time. So if you’ve made numerous late payments, you’re unlikely to be approved. In addition, they’ll typically want to see copies of these bills dating back at least 12 months to really get an accurate representation at how you pay your bills. So be prepared to supply at least one years’ worth of these bills.

 

If you’re not in a rush to buy a home, or perhaps you’ve recently been tardy with paying your bills you may be better off focusing on building your credit ranking. Some of the same strategies used to quickly boost your credit score can be equally effective in building credit.

So be sure to check out my video on “hacks to quickly improve your credit score” where I'll be breaking down some strategies you can use to quickly build a credit score.