Finance expert Dave Ramsey does not believe you should take on debt. And that's the case despite the fact he acknowledges you will not have a good credit score if you avoid borrowing.
Ramsey has made clear that he believes your FICO® Score (the most popular and commonly-used credit score) is not important, contrary to what most financial experts say. In fact, he says you should ideally not have a FICO® Score or other credit score at all.
And he says you do not need one to purchase a home. But, is he right?
Here's what Ramsey has to say about your credit score and homeownership
Ramsey does not believe you need a credit score in order to purchase a home because "there are other ways to prove you pay your bills that don't require you to have debt or a credit score at all."
On the Ramsey Solutions blog, he suggests you simply look for a mortgage lender that does not use the traditional approach to determining eligibility to borrow.
"You can get a mortgage without a FICO® Score as long as you find a company that still does manual underwriting," he advised. "Manual underwriting isn't anything tricky. It's just the process of making sure you're a human who pays bills and has a job. They'll verify your income, employment, and payment history on things like rent and utilities. Sounds pretty straightforward, right? That's because it is."
If a mortgage provider offers manual underwriting, Ramsey explained that the lender will simply look at other documentation such as proof of rent payments, or evidence you've paid your utilities, cellphone, insurance, and childcare costs on time. Lenders will then base their decisions on whether you can borrow on this information instead of on what your credit score is.
Here's the problem with this advice
While Ramsey's advice may sound good at first, there's a huge issue.
Not every lender does manual underwriting. Many loan providers simply will not be willing to give you a loan if you do not have a credit score or if your score is below a certain threshold. The industry standard is to evaluate your credit, and mortgage loan providers typically don't want to go out on a limb and deviate from their standard evaluation process when so much money is at stake.
So, you'll have a hard time finding a lender in the first place if you need manual underwriting. Then, once you do, you'll have to jump through a ton more hoops to get your loan. Even Ramsey acknowledged that "the first hoop will be documentation -- lots and lots of documentation," when pursuing a mortgage with manual underwriting. It's a lot easier to have a lender just check your credit score than it is to produce years of receipts showing on-time payments.
Then, once your lender looks at all this and decides to approve you, you may still get a higher rate than someone who had a great credit score simply because your unusual situation makes you a riskier borrower.
You don't want all this hassle, or the potential chance of having to pay higher rates, so don't listen to this Ramsey advice. If you plan to get a mortgage in the future, you should be working on building credit today.
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