This guide covers what a credit supplement in a mortgage is and how it works. There are three major credit reporting agencies; Transunion, Experian, and Equifax. Each credit reporting agency is independent of each other and each credit reporting agency has its own formula in calculating a consumer’s credit score. C

redit reporting agencies update a consumer’s credit report every month. Paying down credit card balances at the beginning of a month is not updated right away.

Credit reporting agencies will not update credit report until the following month. Normally, there is a 30 day lag time to have credit report updated. In this article, we will discuss and cover Credit Supplement during the mortgage process. In the following paragraphs, we will cover what a credit supplement in the mortgage process is and how it works. Click Here For Credit Supplement During Mortgage Process

What is Credit Supplement for Mortgage?

Borrowers applying for a mortgage or are  currently in the mortgage approval process may not have 30 or more days to wait for the credit bureaus to post updated credit information and have it reflected on a credit report: Mortgage lenders do what is known as rapid rescores and/or credit supplement to have credit information updated to the three credit reporting agencies. This process normally takes three to five business days

Proof of Zero Balance on Credit Cards

One of the most common things borrowers face is going over the maximum debt to income ratios allowed due to credit card payments: If borrowers need to pay off certain credit card balances, lenders will ask to pay off the credit card and provide them with proof of payment from the credit card company. Lenders will do a rapid rescore or credit supplement through a third party vendor.

Third-party credit vendor will take proof of payoff from the credit card company and notify the three major credit bureaus and provide them with the proof of payoff.

The credit bureaus will review the proper proof. They will then update the consumer’s record and post an updated consumer credit report reflecting the changes. The credit vendor makes sure that the consumer’s correct current  information is reflected on the consumer’s credit report and notifies the mortgage lender. The lender can then proceed with processing the mortgage and continue on with the applicant’s mortgage process.

Speak With Our Loan Officer for Getting Mortgage Loans

What Happens to Your Credit When You Get a Mortgage?

Getting a mortgage can have several effects on your credit:

1. Credit Inquiry: When you request a mortgage, the lender will conduct a hard check on your credit report. This investigation may cause your credit score to drop by several points quickly.
2. New Credit Account: Once you are approved for a mortgage and close on the loan, a new credit account will be added to your credit report. A mix of credit types (e.g., mortgage, credit cards, installment loans) can positively impact your credit score, assuming you make timely payments.
3. Credit Utilization: Your mortgage balance will contribute to your overall credit utilization ratio, which is the amount of credit you use compared to your total available credit. To maintain a healthy credit score, it is generally recommended to keep your credit utilization below 30%.
4. Payment History: Making on-time mortgage payments is crucial for your credit score. A history of timely payments can boost your credit score, while late payments can significantly negatively impact you.
5. Credit Mix and Length of Credit History: Diversifying your credit accounts by adding a mortgage can be beneficial in improving your credit score. This is because it adds to the variety of your accounts. Additionally, keeping the mortgage open and in good standing over time can contribute positively to the length of your credit history, another factor that affects your credit score.

Managing your mortgage responsibly by making timely payments and keeping other debts in check to maintain or improve your credit score over the long term is important.

Using Credit Supplement For Errors on Credit Reports

Borrowers errors on credit report such as a judgment that is reporting not satisfied when in fact you have satisfied the judgment can do a credit supplement reflecting that the judgment has been satisfied and paid off. Same way as the above case scenario: Provide lender proof that the judgment has been satisfied. Lender hires a third party credit services vendor. Credit vendor takes the proof of satisfied judgment and provides it to the three credit bureaus. Credit bureaus update the consumer’s credit report and notify the credit vendor. Credit vendor notifies the lender. The lender can then proceed with the mortgage approval process

Credit Supplement With Non-Traditional Credit Trade Lines

Borrowers with no traditional credit trade lines and no credit scores can qualify for a mortgage loan by using non-traditional credit trade lines in lieu of traditional credit trade lines. Traditional credit trade lines are creditors such as the following:

• credit card companies
• auto finance companies
• student loan providers
• other creditors that report a consumer’s credit payment history to all three credit reporting agencies

Non-traditional credit trade lines are creditors or businesses where a consumer has a credit agreement but does not report the payment history to the three major credit reporting agencies. Examples of non-traditional credit trade lines include:

• gas companies
• water bills
• electric bill
• cellular bills
• insurance bills
• cellular bills
• landlords

Credit Supplement With Using Non-Traditional Credit Tradelines

If the lender will use non-traditional credit tradelines, the lender needs to do a credit supplement so it reflects it on the credit bureaus. How non-traditional credit trade lines get done with non-traditional credit trade lines is by providing lender 12 months of canceled checks borrowers made to the non-traditional credit trade lines creditor.

The payment history of the non-traditional credit trade lines creditor needs to be made on time. Otherwise, it defeats the purpose. The payment history is then submitted to the three credit bureaus by the third-party credit vendor.

The credit bureaus will report the non-traditional payment history to the three major credit reporting agencies. Most credit supplements take anywhere between 3 to 5 business days.

How Long Does It Take To Get a Credit Supplement Back?

The duration for receiving a credit supplement may differ based on various factors, including the intricacy of the information being updated, the effectiveness of the creditor or lender reporting the information, and the time the credit bureaus take to process the information. Credit bureaus aim to process credit supplements within 30 days of receiving the request.

However, it’s essential to note that this timeline is not guaranteed, and there may be delays due to various reasons, such as high volumes of requests, verification processes, or inaccuracies that require further investigation. Following up with the credit bureau if you have yet to receive a response within a reasonable timeframe is advisable to ensure that your credit report is updated accurately.

Homebuyers who need to qualify for a mortgage with a direct lender with no lender overlays on government and/or conventional loans can contact us at Gustan Cho Associates Mortgage Group at 800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. Qualify for a mortgage Loan, Click here

FAQ: What is a Credit Supplement For a Mortgage

1. What is a Credit Supplement for a Mortgage? A credit supplement in the mortgage process refers to a method lenders use to update credit information quickly, typically within three to five business days, instead of waiting for the standard 30-day update cycle of credit reporting agencies. This process is often employed when borrowers must address specific credit issues or discrepancies during the mortgage approval process.

2. How Does a Credit Supplement Work? Lenders may utilize rapid rescores or credit supplements to update credit information with the three major credit reporting agencies (TransUnion, Experian, Equifax). For example, if a borrower needs to pay off credit card balances to meet debt-to-income ratios, the lender may request proof of payment from the credit card company. A third-party credit vendor then submits this proof to the credit bureaus, who update the borrower’s credit report accordingly.

3. What Happens to Your Credit When You Get a Mortgage? Getting a mortgage can impact your credit in several ways. It involves a credit inquiry, which may temporarily lower your credit score. Once the mortgage is approved and closed, a new credit account is added to your report. Timely mortgage payments can improve your credit, while late payments can hurt it. Additionally, having a mix of credit types and managing credit utilization are factors to consider.

4. How Long Does It Take to Get a Credit Supplement Back? The timeframe for receiving a credit supplement can vary but generally takes three to five business days. However, credit bureaus aim to process credit supplements within 30 days. Delays can occur due to verification processes or high volumes of requests. Following up if you have not received a response within a reasonable timeframe is advisable.

5. Can Credit Supplements Correct Errors on Credit Reports? Credit supplements can address errors on credit reports, such as inaccuracies in judgments or payment histories. Lenders may request proof of correction, which is then submitted to credit bureaus through a credit vendor. This process ensures that the correct information is reflected on the borrower’s credit report, benefiting their mortgage approval process.

6. Can Non-Traditional Credit Trade Lines Use Credit Supplements? Yes, borrowers with non-traditional credit trade lines, such as utility bills or rental payments, can use credit supplements to demonstrate their payment history. Lenders may require proof of payment over a specified period, which is submitted to credit bureaus for updating the credit report. This can be beneficial for borrowers without traditional credit accounts.

7. How Do I Qualify for a Mortgage with No Lender Overlays? Homebuyers seeking to qualify for a mortgage with no lender overlays on government or conventional loans can contact Gustan Cho Associates Mortgage Group. They offer assistance in navigating the mortgage approval process and provide options for borrowers with unique credit situations.

Speak With Our Loan Officer for Getting Fannie Mae or Freddie Mac Loans

This blog about What is a Credit Supplement For a Mortgage was updated on April 2nd, 2024.