How Mortgage Lenders Review Credit
Credit History Home Loan Lenders Want along with Credit Scores
Nov 5, 2008
It is important to understand that not all creditors report to any of the three CRAs or Consumer Reporting Agencies. So your local business purchase on installment payments may do nothing for creating a positive credit history. If you do purchase on time from a local business, ask if it reports to any of the CRAs: TransUnion, Equifax, or Experian.
Credit Histories the Mortgage Lenders Want to See
Do you have at least one major installment loan, either open or recently closed within the last 12 to 24 months? Installment loans are loans that are given a specific time period and are being paid down monthly with the same required payment. Auto loans, mortgages, and other big ticket items are of that category.
Revolving credit is open ended. It is usually a credit card or even a home equity loan that allows you to take out money as needed and pay a minimum monthly amount. Open credit cards with a zero balance will still show on your report and be considered valid credit histories if the card was used.
Credit Data on Your Mortgage Credit Report
Each credit line on a mortgage credit report or tri-merge shows the name of the creditor, the type of credit, the date it was opened or started, the amount borrowed or used, the date it was closed with the final status, and the current balance. Then there are three columns alongside each lender or creditor labeled with the numbers 30, 60, and 90. Those columns will show the amount of times you were late for that many days.
The mortgage tri-merge credit reports also include public records data from the local and federal court systems. Those include bankruptcies, judgments, and tax liens. Those records are usually the most inaccurate since the courts do not report to the CRAs (Consumer Reporting Agencies) with current data. Judgments and tax liens that are on the report and cannot be successfully disputed usually must be paid before a mortgage will be granted.
Good Credit and Bad Credit
Even if you are fined by the creditor for being late, that late payment cannot show up on any of the CRAs unless it is 30 days or more past due! You have, in effect, an extended “grace period”. The same holds true for the 60 and 90 day columns. Late 59 days will still show as 30 days late until it actually hits 60 days, and so on.
Any late payments 30 days or over past due are labeled as derogatory. Longer late periods and collections are considered major derogs, and even with good scores, major derogs that are within the last 12 months can lead to a your application being turned down.
Dispute and Fix Inaccurate Credit Reports Fast
Any items that should not be on your credit reports can be remedied with documentation that proves otherwise from the court, creditor, or collection agency involved. It pays to pay by check, because a double sided copy of a canceled check is as good as it gets or proof of payment. If you go through the hoops to dispute derogatory credit yourself, it could take over a month for you to get results.
Find a mortgage broker who has access to a mortgage tri-merge credit report agency. Such an agency usually provides the service of faxing over your dispute documentation directly to the CRAs involved with any items that are incorrect. Results will be available within 72 hours. Then you can have negative items removed and higher credit scores. See Managing Your Credit Scores for more.
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