Mortgage Credit Reports

The credit bureau begins preparing your mortgage credit report by searching the national computer files and its own files for information on you (and your spouse or coborrower, if applicable). In addition to searching their existing files, they obtain the latest information about your credit by making inquiries by telephone and letter specific to the information on your mortgage application.

The primary focus of your credit report is your credit history. For each of your bank and automobile loans, credit cards (whether you have used them recently), charge accounts, school loans, leases and business and mortgage loans, a line of descriptive information will appear on your credit report, such as:

Creditor's name;

Type of account (installment, credit card, charge account, automobile loan, etc.);

Account number;

Date opened;

Maximum allowable balance, "high" credit balance, current balance and past due amount (if any);

Required monthly payment and

Payment history.

The payment history is of critical importance to your lender's underwriter. For each account listed, it shows how many times you were more than 30/60/90+ days late in making your required monthly payment. It also shows your usual payment patterns, whether you almost always pay on time or are usually late 30, 60 or 90 days. It also reports any repossessions, credit workouts and accounts fully paid.

In addition to reporting on your credit history, the mortgage credit report verifies some of the noncredit information that you disclose on your mortgage application as well:

Employment history for at least the past two years (employers, job titles, income, if available);

Residency information for at least the past two years (address, landlord and rental or mortgage payment history) and

Public record information (lawsuits, legal judgments, marriage or divorce, tax liens, bankruptcy and foreclosures).

Failure to disclose credit problems or answer all of the related questions on your mortgage application fully is a sure way to be rejected.

Although the lender charges you for a credit report as part of your application fee, you will not have a chance to look at your credit report. You do have the right to inspect a summary of the credit report, challenge any inaccuracies and request that the credit agencies make corrections. You can buy a special "consumer version" of your report. If you are concerned about the information collected about you, it is worth the $8 or so that you must pay for it. If you believe that someone has fraudulently altered your credit report, you can get a complimentary copy from Experian (formerly TRW). Go to www.experian.com/product/consumer/fee.html on the Internet. A taped message will instruct you how to obtain the report.

Most lenders are strict on credit problems. Some do not make mortgage loans to people who have had a previous foreclosure or bankruptcy. Others require two or more years with a clean credit record, following such a major credit problem. If you have had credit problems, disclose them to the loan officer and ask about the lender's policies prior to application.

Many lenders will require you to submit a written explanation of any detrimental comments that appear on your credit report. For example, "Explain why you were a month late on two MasterCard payments the past year," or "Why did you miss a mortgage payment two years ago?" Although these requests may seem a little picky and may be somewhat irritating, a simple explanation such as "I was on vacation" or "I misplaced the bill" usually will be enough for minor credit discrepancies like these examples.

Moderate tardiness on paying bills usually will not disqualify you for a mortgage. But when combined with tight qualifying ratios and a small down payment, chronic credit problems may cause lenders to turn down your application. It may cost you additional points or a higher rate.