What Does a Lender Do With My Credit Report?

When you apply for a mortgage to buy a home, your lender typically obtains a copy of your credit reports and also your credit scores. Although you may not see this information in the paperwork you have to sign, your lender reviews it carefully in determining your credit-worthiness.

Here is why, and what happens to your report once you apply. To better understand your financial situation as it relates to buying a home, speak with a lender and/or financial advisor.

Why Do Mortgage Lenders Check My Credit?

There are two reasons that a lender may want to check your credit when you apply for a mortgage loan. The first is to learn more about your history of borrowing money and paying it back. Although most of the information that shows up in a basic credit report will relate to existing loans you have and open credit lines, there is also data about debts you have had in the past. Your record of paying all debts on time and not letting any delinquent accounts go to collection will show the lender that you are a reliable borrower.

The second reason involves a verification of the information you provided in the application. Your credit report shows the lender how much debt you are currently carrying, as well as the credit limits and monthly payments, as applicable. You are also typically required to quantify your monthly debt obligations in the application. If the sum on the application is significantly lower than the numbers in the credit history, the lender may request more information before making a decision about the application.

What Type of Credit Report Do Lenders Request?

When you apply for a loan, a lender can request a credit report and credit score from one or more of the three credit reporting agencies: TransUnion, Equifax and Experian. Each lender is allowed to decide which reports to check, if not all three. For a mortgage application, the lender will likely look at your credit report and score for all three agencies. This report is called a residential mortgage credit report, and organizes the report in such a way that it is really easy to compare the information listed in the separate reports.

Do I Get a Copy of My Credit Report?

Your credit report is intended primarily for the lender to examine and possibly use during the underwriting process. If the lender decides to offer you a loan, you may ask the lender for a copy of your credit report. If your application is denied based on credit, the lender must usually give you the name of the reporting bureau where the report came from. It should be noted that, by law, you are allowed to request a free copy of your credit report within 60 days of denial for any loan type. This law does not always guarantee access to your credit score, however.

Will the Credit Check Damage My Credit?

As with many factors relating to your credit, moderation is key. Credit checks of any kind in the past two years will show up on your credit report. One or two credit checks for mortgage applications in a generally good credit record should not significantly damage your credit. One check every now and then may not lower your score at all. By comparison, lots of credit checks and new accounts could make lenders wary of a borrower’s ability to pay back obligations. Invest the time to do research into different lenders, but be cautious about making too many applications for credit in a short period of time.

The processing of your mortgage application often starts with a check of your credit report and credit score. With this information, the lender can decide if you are an eligible borrower.