Importance Of Understanding Your Credit Report

Understanding Your Credit Report Advice Was UPDATED On March 28th, 2017

Understanding your credit report is extremely important for not just mortgage loan 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 on their debts. 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 and presented to those requesting the credit report. There are three credit reporting agencies:

  • TransUnion
  • Experian
  • Equifax

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.

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 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 your 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 years 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.  You can also wait out the statute of limitations.  Chapter 7 Bankruptcies are on your credit for 10 years.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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