Credit Report Reviews

Generally speaking, a borrower's credit report is a reflection of their willingness to repay debt. Your past ability to manage debt is a key factor in a lender's assessment of risk.  During loan processing, a credit report on all borrowers is obtained from a credit-reporting agency.

In general credit-reporting agencies gather information from the three major credit repositories, Equifax, Trans Union, and Experian. The credit report provides information about:

Payment History - Reflects the historical payment history of both open and closed accounts. Lenders use a borrower's past history as an indication of future payment performance. As a rule, the older derogatory credit is, the less relevant it becomes in the underwriting decision. Most lenders will require a written letter of explanation for all derogatory credit issues.

Outstanding Debt - Lenders consider the amount of outstanding balances as an indication of the ability to manage credit. The relationship of utilized credit to available credit is also an important factor. Borrowers with perfect payment history but large open balances of credit are possible causes for concern.

Credit History - Reflects how long a borrower has had credit. Borrowers who have had credit for long periods of time are generally considered less risky than individuals without a track record. Borrowers looking to establish credit history may have to provide additional references such as payment histories on rent, utilities, and insurance.

Number of Credit Inquiries - Each time a borrower applies for credit, an inquiry will appear on their credit report. Multiple inquiries on a credit report, especially within a short period of time, may be indicative of increased credit usage and potentially increased risk for a lender.

Credit Scoring - Credit scores are rapidly becoming a major factor in the underwriting process. For more information, please refer to "Credit Scoring"

Improving Your Credit - It is important to realize that accurate information cannot legally be removed from a credit report. Federal law mandates the time periods that accurate negative information must remain on a report. Only time and a good track record can heal negative credit reports.

The Fair Credit Reporting Act (FCRA) provides the following statute of limitations:

Bankruptcies: 10 year from date of entry for relief
Judgments - Paid: 7 years from date of entry
Tax Liens - Paid: 7 years from date of payment
Tax Liens - Unpaid: No Limitation
Collections - 7 years from the date collection activity begins
Charge Offs - 7 years from the date the account was charge off
Other Adverse Information - 7 years

Correcting Credit Report Errors - Credit reports are sometimes inaccurate or are not updated in a timely fashion. Consumers should periodically request copies of their credit report to ensure accuracy. It is highly recommended that borrowers obtain copies of their credit report well in advance of applying for a loan. To correct errors, call or write the credit bureau and explain the errors. The bureau will check with the source of the information and send you an update. If you disagree with the information, you can add a statement to your credit report.

Below is a list of the three major credit reporting agencies. Borrowers can request a copy of their credit report directly from these agencies and receive help resolving credit problems.

Equifax:      800.685.1111
Experian:        888.397.3742
TransUnion:   800.916.8800

If you are denied credit, you are entitled to receive a free copy of your credit report within 60 days of the denial.  Your letter of declination should provide the name of the reporting agency to contact.