In order to obtain a loan, borrowers must submit their credit report to the lender for evaluation of reliability. A credit score represents the amount of risk which a particular borrower presents to a lender; essentially, the higher the credit score, the lower the risk for lenders in funding the loan. Generally, information regarding a borrower’s credit is compiled in a credit report, although these reports contain more information than simply a borrower’s FICO score.
In the process of generating a credit report, Credit Bureaus collect four distinct types of information, typically obtaining this information from public records and creditors; this information includes:
Identification and Employment Information: This includes a borrower’s name, birth date, social security number, spouse’s name, and home address. Additionally, previous and current employer information may be listed on the credit report. Home ownership may also be listed occasionally.
Bankruptcy, Foreclosure, & Other Public Records: Borrowers who have undergone a bankruptcy will find this information listed on their credit reports for a fixed period of time. Furthermore, a borrower’s credit report will contain records of tax liens, court judgments, or foreclosures. Although borrowers may feel uncomfortable with all of this personal information listed in one place, the information is public record and will most likely be located on a credit report.
Payment History: Credit reports contain a record of all closed and open accounts, current revolving credit accounts, and major loan accounts currently in repayment. When determining a borrower’s qualifications in the loan approval process, lenders often consider payment history the most crucial factor in assessing a borrower’s reliability. Accordingly, a borrower’s payment history will generally govern whether or not a borrower qualifies, as well as what range of rates he or she qualifies for.
Credit Inquiries: While borrowers may not see this on their credit reports, credit bureaus have access to information regarding borrower credit inquiries. Credit Bureaus must keep an accurate record of all of the companies who have requested a borrower’s credit report for credit purposes for one year; for companies who have requested this information for employment reasons, Credit Bureaus must keep these records for two years.
With credit playing such a crucial role in obtaining mortgage loans, in addition to its uses for employment, borrowers should monitor their credit report to ensure that the profile is current and accurate. If you discover an error or inconsistency, be sure to resolve the issue as soon as possible to secure the best mortgage rates.
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