Does Insufficient Credit File Mean You Have Bad Credit?By Kathy Godin
Mortgage application denied. Insufficient credit file cited as the reason. This couldn’t mean she had bad credit could it? She was baffled.
Evelyn was quite the successful career women. She worked for a major corporation and made very good money. She had credit and always paid on time. Always. Why couldn’t she buy a house?
First let’s clarify that this does not mean you have bad credit, just lack of credit. The computer needs a certain amount of information to compute your FICO credit score. Lacking this information the computer says you have an “insufficient credit file.”
People who pay cash run into this situation, but Evelyn had established credit to avoid this problem when she bought a house. So what is going on?
In some cases, when two companies merge they may request that credit bureaus remove their accounts from credit reports. They want to make sure the account information is combined correctly. This corrects itself. Once the new merged company is satisfied your account is correct, they will report to the credit bureaus again.
This wasn’t the case with Evelyn. Accounts were just missing from her credit report. She wanted to dispute the errors. I started asking questions. The answers caused me to advise against disputes. My reason was…
The credit bureaus were powerless to correct the problem.
You see The Fair Credit Report Act (FCRA) does not require businesses to report to all three credit bureaus. As a matter of fact, it doesn’t require business to report at all. Some businesses choose not to report and the credit bureaus can’t do anything about it.
Analysis of Evelyn’s credit accounts showed a clear pattern. Her accounts included:
= Furniture store and other local retailers
= Gas card (some report/some don’t)
= Student loans (some report/some don’t)
Evelyn could contact these companies and request they report to the credit bureaus. Often such requests are denied. Why? They can’t just send a letter to the bureaus with your information. Lenders must apply to the credit bureaus and request to become members. Becoming a member is not automatic. Nor is it free.
Credit bureaus have criteria that must be met. Among other things, lenders must…
= Generate a certain volume
= Submit to an inspection (there’s a fee)
= They must purchase software compatible with the bureaus
= They must join e-OSCAR (automated & secure system for processing disputes)
As you can see, complying with Evelyn’s request to report her accounts is not feasible. They are not just being difficult. So what can Evelyn do?
Evelyn must establish credit with companies that report to all three credit bureaus. An example would be to apply for a national credit card and use it in place of her gas card.
So, no house for Evelyn? Fortunately we were able to use an alternate method of showing she was credit worthy. It calls for using trade lines (rent, utilities, etc.) This option was available since none of her credit accounts reported. So in spite of an insufficient credit file Evelyn is now the proud owner of a new home.
Kathy Godin, Branch Manager & Award-Winning Loan Officer
Where people, not computer robots, answer the phone.
Proudly Serving All of North Carolina