How Do Mortgage Underwriters Analyze Borrowers Credit Reports


How Do Mortgage Underwriters Analyze Borrowers Credit Reports

This BLOG On How Do Mortgage Underwriters Analyze Borrowers Credit Reports During Mortgage Process Was UPDATED On October 21st, 2018

A consumers credit score is probably the most important factor that comes into play when applying for credit.

  • When a home buyer applies for a home loan they need to meet the minimum credit score requirement
  • However, just meeting the minimum credit score requirements is not everything when a mortgage borrower applies for a mortgage
  • Lenders will pull borrowers credit reports and review the overall payment history and patterns
  • Late payments in the past 12 months is not normally allowed
  • One or two late payments in the past 12 months is not a deal killer
  • However, multiple habitual late payments on credit reports will be most likely disqualify a mortgage borrower
  • Late Payments after bankruptcy and foreclosure is not normally allowed by most lenders
  • Again, one or two late payments after bankruptcy and/or housing event is not a deal killer with The Gustan Cho Team at Loan Cabin Inc.
  • However, multiple late payments may not render an approve/eligible per Automated Underwriting System Findings

Credit Approval By Creditors

Creditors, especially mortgage lenders, want to thoroughly review a borrowers overall credit profile on their credit report. Although credit scores are very important, more importantly is the borrowers past payment patterns reflected on credit reports. Past payment patterns is reflective of future payment forecast of borrowers. That is why it is so important for mortgage borrowers to make sure they review their credit reports and make sure there are no errors and to pay down maxed out credit cards prior to applying for mortgage.

  • Credit scores is what determines whether someone gets approved for credit:
    • Mortgages
    • Credit Cards
    • Auto loans
    • Any revolving credit accounts
    • Or installment credit accounts
  • Credit scores also determine what a persons insurance premium is: 
    • The lower the credit scores, the higher the insurance premium
  • Credit scores is derived from credit report
  • Credit report is a history of a consumers credit and payment history, public records, and personal information
  • If a consumer is late on a monthly payment, it will be reflected on credit report and will definitely drop credit scores
  • Everyone should check their credit reports periodically for errors and accuracy
  • Credit reports do contain errors and it is up to consumers to dispute errors on the credit reports by notifying the three major credit bureaus: 
    • Transunion
    • Experian
    • Equifax

Most Common Credit Report Errors And How To Get Free Copy Of Credit Report Once A Year

Make sure personal profile and former addresses are correct.

  • Many times the credit bureaus have incorrect information on credit report
  • This is very common for those with common names like Jim Jones or John Smith
  • There might even have erroneous employer information on the credit report that might raise a red flag when applying for a mortgage or other credit where the underwriting will deny the loan due to errors or inaccuracies
  • At best, it will cause delays and the lender might ask to write a letter of explanation
  • Also check to see if name is spelled correctly and/or middle name is correct
  • If  there are other names or variations of  name posted on credit report and have incorrect addresses, this could be a sign that someone other than yourself might have applied credit
  • Check for correct spelling of name and social security number with a different address
  • Identity theft is one of the fastest growing crimes in America and anyone can be a victim of identity theft

Monitor Credit Report

Also check to see that all of the credit accounts on credit report is correct:

  • Review credit report line item per line item for accuracy
  • Dispute any inaccuracies and/or errors to the three credit reporting agencies
  • This could be a signal being a victim of Identity Theft and that someone has opened a credit account using your name and social security number but a different address
  • This is very common and many times the victim does not realize this is happening until at a later date

Check For Credit Limit Decrease On Credit Reports

Make sure that all of credit card limits are what they are and that the creditor has not posted a lower credit limit than what you have.

  • This is important because it is call the credit utilization ratio and consists of the credit balance divided by the credit limit
  • The lower credit utilization ratio, the higher credit scores
  • So if there is a credit balance but the credit limit is being reported lower than the actual credit limit, credit utilization ratio will be higher, thus, hurting credit scores

Monitor That Derogatories Over 7 Years Old Are Removed From Credit Reports

Prior bad credit histories stay on consumer credit reports for a period of 7 years with the exception of bankruptcies which remain on credit report for 10 years.  Make sure that all of your bad credit items that are 7 years old or older have been deleted off credit reports.

Credit Disputes On Credit Reports During Mortgage Process

I strongly recommend that everyone check credit reports often and dispute errors or items that are inaccurate.

  • However, if those who are going through a credit repair program and want to delete bad credit items by disputing items that are correct but are hoping that the creditor does not report back to the credit bureaus, thus, having bad credit item deleted, that tactic will backfire when applying for mortgage 
  • Lenders prohibit credit disputes with a credit balance during mortgage process
  • Borrowers need to retract all credit disputes during mortgage approval process 
  • The problem with retracting the dispute, it can plummet credit scores by 80 or more points
  • This has happens time and time again so please do not dispute derogatory items with credit balances

Prepare To Qualify For Mortgage

Home Buyers with bad credit can qualify for mortgage. Home Buyers needing to qualify for home loan with a direct lender with no lender overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays. USA Mortgage is a direct lender with no lender overlays on government and conventional loans.

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