What Do Mortgage Lenders Look for on Credit Reports?

Written by Anytime EstimateJune 28th, 20225 minute read

When you apply for a mortgage, the first thing a lender will do is obtain a copy of your credit report. Your credit report tells the lender how you've repaid your debt obligations in the past. Most mortgage lenders depend on the information found in credit reports.

Consequently, it's very important that you understand the information contained on your credit report and take the necessary actions to improve or correct any inaccuracies. It's best to clean up your credit report as much as possible before a lender sees it, rather than being put in the position of having to "explain away" problems a lender discovers on your credit report.

A review of your credit history might well reveal inaccurate or incomplete information. A common problem with credit reports is a paid off credit account that still reflects a substantial balance due.

Correcting the inaccuracy will improve your debt to income ratio and your credit score and strengthen your credit record. Information reported on your credit report with people with similar a name or social security number can also occur.

What information is contained in your credit report?

Credit reports contain information about the types of credit accounts you have, your past and present repayment history on charge cards, loans, credit cards, and other extensions of credit; and whether you have ever filed for bankruptcy or been sued.

Some creditors do not report their information to the credit agencies, or may only report certain accounts (i.e. delinquent accounts) to credit bureaus. Consequently, some of your accounts may not appear on your credit report, such as, revolving charge cards, open-end loans, credit cards, or lines of credit.

Things to look out for when reviewing your credit history

Carefully check all the information on your credit report, including, background information such as current and past employment, address information, and salary figures (if applicable).

Mare sure all credit accounts listed on your credit report are yours. Sometimes, due to name similarities and other factors, it is possible for an account to be incorrectly reported on someone else's credit report.

Verify that all outstanding credit balances are accurate and current. If you have past due amounts, check that they are correct. All activity dates or status dates should be correct. This is especially important on accounts that carry an unfavorable rating, since these accounts will remain on your credit report for seven years from the date of last activity. This date could be the date of your most recent or final payment date.

Sometimes the same amount will be reported twice on your credit report. This is called a "duplicate submission." Be on the lookout for account numbers that are transposed or contain minor variations.

What are credit-reporting agencies?

Credit reporting agencies (also known as credit bureaus) collect and store information on individuals for the benefit of their subscribers. The credit information is obtained from creditors who report the bill paying behavior of their borrowers.

Additional information on consumers is obtained from court records and other public documents. The role of credit-reporting agencies is to provide creditors with a complete credit profile of the consumer creditworthiness. The credit agencies serve as a source of information concerning your financial profile.

The credit information can then be used as a predictor of future performance by potential creditors. The credit bureaus do not decide whether your credit application should be accepted or denied.

Which credit-reporting agencies maintain reports on you?

The three largest credit agencies include Equifax, TransUnion, and Experian.

How long does a delinquency stay on your credit report?

Credit reporting companies are prohibited from reporting adverse information beyond certain time periods. The following types of information can only be reported for seven years:

Delinquent accounts, accounts placed for collection, charged off accounts and court judgments to name a few.

Bankruptcies may be reported for up to 10 years. You might be surprised to know that the credit score hit decreases with time.

You’re right to review

Everyone has the right to a copy of their credit report from Equifax, TransUnion, and Experian once a year at AnnualCreditReport.com.

If you have been declined by the credit-reporting agency creditor, you can obtain a copy of your credit report, without charge, if you have been declined within the last 30 days by a creditor. The creditor must furnish you a copy of your credit report and must disclose to you the contents of the credit report and the name of the credit-reporting agency that furnished the information.

How do I update my credit report?

The best way to update your credit report is to contact the credit provider directly and ask them (politely) if they would kindly correct the information on your credit report.

Frequently Asked Questions About Lender Credit Reports

Q. What is a lender's credit report?
A. Lenders use a credit report from a third party provider who merges the information from Equifax, Experian, and TransUnion into one consolidated credit report. The reason lenders obtain a tri-merged credit report is to pick up information that might be reported by one company but not the other credit reporting companies.

Merging the information from all three credit repositories, presents an accurate credit profile of the applicant.

Q. What credit score do lenders use for a mortgage?
A. Lenders use the 'middle' credit score. Equifax, Experian, and TransUnion evaluate the numerical credit score differently.

For example, Equifax might score the applicant's credit at 720, Experian could state the score at 730 and finally, TransUnion could rate the applicant's credit at 675. In this example, the middle score of 720 would be used.

Q. How do credit scores affect mortgage rates?
A. In the olden days, about 20 years ago, mortgage rates were not affected by low or high credit scores. The mortgage rate was the same for all applicants. Now, the interest rate is adjusted for low credit scores. It should be noted that the government backed programs are not as affected as conventional mortgages.

Q. Does the credit score affect home insurance?
A. It can. The Fair Credit Reporting Act allows insurance companies to review your credit report and use the information to establish the home insurance premium.

Q. How to improve your credit score for a mortgage?
A. See Rapid rescore service.