Understanding Your Credit Report To Qualify For Mortgage

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Understanding Your Credit Report To Qualify For Mortgage

This BLOG On Understanding Your Credit Report To Qualify For Mortgage Was UPDATED On November 17th, 2018

Understanding your credit report is extremely important for not borrowers but for all consumers.

  • A person’s credit report provides information to existing and potential creditors on the credit applicants payment history and patterns
  • An applicant’s past payment performance and history is a good indicator of future potential payment and risk of defaulting by consumers
  • Creditors, including mortgage companies, uses a person’s past payment history reflected on their credit report in deciding whether or not to extend credit

Understanding Your Credit Report And Underwriting

A consumer credit report is only compiled when a creditor or lender makes an inquiry.

  • Information supplied by creditors and/or lenders and court records is gathered from the credit bureaus’s file
  • It is provided to those requesting the credit report and authorized by credit applicants

There are three credit reporting agencies:

  • TransUnion
  • Experian
  • Equifax

Credit Scoring Model By Credit Bureaus

Each one of these credit reporting agencies have their own formula in deriving a consumer’s credit scores.

  • Each consumer will have three different credit scores and lenders will use the middle credit score
  • Creditors will update a consumer payment history and updates once each month
  • Updates includes current balances, new inquiries, and how consumers use and pay for their accounts

Free Copy Of Consumer Credit Reports

Consumers, under federal law and the Fair Credit Reporting Act, which is also called the FCRA, have an entitlement to a free copy of their credit report:

  • Consumers are entitled to a copy of their credit report in the event if they have been denied for credit, housing, as well as employment
  • This copy needs to be provided to consumers under the FCRA within 60 days of a credit decision
  • Under the same FCRA law, consumers are entitled to one free annual credit report every year

Understand Your Credit Report And The Fair Credit Reporting Act

Under the Fair Credit Reporting Act creditors have up to 7 years to post derogatory credit items on credit report.

  • Bad credit items such as collections, late payments, and charge offs can only be reported on your credit report for a period of 7 years from the date of last activity and must be deleted from their credit report
  • Judgments are normally effective for 10 year
  • But the credit reporting agencies must delete an unsatisfied or even a satisfied judgment after 7 years from the date the judgment was posted
  • Even though judgment is not reported on credit report after it has been deleted, the judgment still is in effect for 10 years and the judgment creditor can renew a judgment for another 10 years

The only way a debtor can get rid of a judgment is either by filing bankruptcy or settling with the judgement creditor.  Consumers can also wait out the statute of limitations.  Chapter 7 Bankruptcies are on your credit for 10 years.

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