Can you qualify for a mortgage loan if you don't have a long enough credit history to even have your own three-digit credit score? Probably not. But there is hope, if you're patient and diligent enough to steadily build a credit history from scratch.

You pay your apartment rent on time every month. You've never missed a payment for your cell phone. You've sent in every doctor and dentist bill long before their due dates. Qualifying for a mortgage should be easy, right?

What counts toward your credit history?

Not if you don't have a credit history. And paying utility, medical and cell-phone bills don't give you a credit history. These payments are (almost) never reported to the three national credit bureaus. And if they're not reported, they won't help you build a credit history that lenders can access.

Most lenders require that you have a three-digit credit score before they'll approve you for a mortgage loan. And if you don't have credit cards, student loans or an auto loan on which you're making regular payments, you won't have enough of a credit history to have a score, no matter how diligent you've been with paying your other bills on time.

It's a challenge that many young adults face: They leave college and enter the workforce without enough of a credit history to have a credit score. And when they apply for a home loan, they're denied.

"It can be a bit challenging today to establish a credit history because of the economy we've seen," said Rod Griffin, director of public education with national credit bureau Experian. "The fact that lenders are less able to or less willing to extend credit in many cases makes it more challenging, too. It's not easy for young adults to establish a credit history in this economy."

An important number

Your three-digit credit score is a key number.

Why? Lenders rely on consumers' three-digit credit scores -- mostly on one known as the FICO score -- to determine how likely borrowers are to make their mortgage payments on time. A high credit score -- lenders consider a FICO score of 740 or higher to be an excellent one -- means that borrowers have a history of paying their bills on time. A low score means that they don't.

But no score? That's a different challenge. Lenders have no idea how risky it would be to lend you mortgage money.

"The mortgage-approval process is driven by credit," said Staci Titsworth, vice president and regional sales manager at the Pittsburgh office of PNC Mortgage. "Lenders want to see that you have the ability and the willingness to pay back your mortgage loan. Without a credit score, lenders don't have that history that they can look at."

You can qualify for a mortgage even if you have no credit score or a limited credit history. But it won't be easy. The better option might be to wait until you've built up enough of a credit history to have a credit score, something that could take from six months to a year.

Other forms of credit

To qualify for a mortgage with no credit history, you'll need to find a lender that does manual underwriting and considers non-traditional forms of credit. Titsworth says that such lenders might consider on-time rent payments, utility payments and insurance payments. To prove that you have a history of making these payments on time, you'll usually need to show lenders 12 months of canceled checks, Titsworth said.

"Not receipts, but actual canceled checks," Titsworth said. "That's one way in which lenders can help build a credit profile for you."

It helps, too, if you have a high monthly income, low debts and plenty of money saved in the bank.

But finding a lender that performs manual underwriting today is no easy task. It might be easier instead to steadily build your credit history. This requires patience. But as Anthony Sprauve, public relations specialist with FICO, says, everything in life that is worthwhile requires patience.

"It's easy to get fat. It can be fun to get fat. But it takes more time to get thin and healthy," Sprauve said. "I hear people get frustrated. They want a quick fix. The reality is, there is no quick fix. Building a credit history takes time and diligence. That's how it is with anything you want in life."

Building your credit history

To get a three-digit credit score -- and to make applying for a mortgage an easier task -- you must first build a credit history. To do this, you'll need to first acquire credit and pay back your creditors.

If you have no credit history at all -- meaning that you are not paying back student loans or an auto loan and you have no credit cards -- your first step should be to acquire a simple, basic credit card. You might be able to do this at your local bank if you've already established a banking relationship with it. Once you have this card, make your payments on time. And be sure to keep your balance below 30 percent of your available credit.

Sprauve then recommends that after six months or so, you apply for another form of credit. If you need a car, this would be a good time to apply for an auto loan. Maybe you can apply for a small line of credit from your bank. Again, make your payments on time.

After six months to a year of making payments on time, you should have enough of a credit history to have a solid FICO credit score. You can then confidently apply for a home loan.

If you can't get a credit card

But what if you can't find any financial institution willing to give you a credit score? You still have options. Your bank might be willing to give you a secured credit card. Such cards are tied to your savings account. With a secured card, you'll have a credit limit that is a certain percentage of your savings account balance. Your bank can then withdraw funds from your savings account to pay your minimum payments if you fail to do so.

You can also sign up to be an authorized user on the existing credit-card account of a family member. If you do this, you'll be able to use the credit card and slowly build your credit. But you won't be responsible for paying any of the debt on such an account. That responsibility falls to the main account holder.

You can also sign up for a joint credit-card account with a spouse or family member who has a stronger credit history. Using your joint credit card will slowly build your credit history. You will, though, be just as responsible for the debt generated on the account as the person you team with to take out the card.

Finally, you might be able to convince a family member to co-sign for you on an installment loan such as an auto loan. Paying back this loan on time will help you build a strong credit score. But there is risk for the co-signer on your loan; if you fail to make your payments, your creditor will seek the missing payments from your co-signer.

Start building credit early

There is additional good news for consumers with limited or no credit histories. Traditionally, apartment rent payments have not been reported to the national credit bureaus Experian, Equifax or TransUnion. But this is starting to change. Both Experian and TransUnion are now accepting reports from landlords. If your landlord agrees to report your payment history to these bureaus, that, too, can help you steadily build a credit score.

Griffin said that young adults should begin building their credit history early. Then, when they do eventually want to apply for their first mortgage, they'll have a long enough history to convince lenders that they are a good lending risk.

"It's important to start as a young person in college with just one or two small accounts," Griffin said. "Use those accounts wisely. Pay your bills on time. Don't run up too much debt. It's so important to build a credit history today. You want it to be there when you need it, when you need to buy a car, rent an apartment or apply for a mortgage loan."

Published on January 7, 2011