Understanding Credit Reports Part 1

Written By: Daniel Garcia

Throughout the years I have met many mortgage processors who have a variety of experience in the industry. One thing that seems to always surprise me with some is their inability to read and understand a credit report. Processing is more than just ordering verifications and fulfilling conditions. It has always been my belief and many of you will agree that as processors, knowing how to read and understand a credit report is vital in our industry. So over the next few weeks we will be discussing some things to look for when reviewing a credit report and how to interpret that information.

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Credit reports can look very different from each other depending on the company used to generate the report. But they all contain the same basic information. There are several types available. The one most of us use and is standard in our industry is the tri-merge credit report. This is a report that pulls information from all three major credit bureaus and merges them into one report.
Identifying Information:

First things to look for are the borrower’s name, address, Social Security number and date of birth. Make sure that these things are accurate. You may notice multiple versions of the borrower’s name, especially if they are a married/divorced female who has changed her name a few times. This section will also show any nicknames and abbreviations of you name that might be luring out there. The borrower’s past and present address(es) will be included as well. These factors are not used in credit scoring.

Trade Lines:
The next things to look for are the trade lines. These are credit accounts. Lenders report on each account that is established with them. They report the type of account, the date the borrower opened the account, credit limit, loan amount, the account balance, and payment history.

There are three different types of account classifications:
• Mortgage Accounts: These include first mortgages, home equity loans, and any other loans secured by real estate that the borrower owns.
• Revolving Accounts: Revolving accounts are charge accounts that have a credit limit and require a minimum payment each month. This includes most credit cards.
• Installment Accounts: Installment accounts are credit accounts in which the amount of the payment and the number of payments are predetermined or fixed, such as a car loan.

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Credit Inquiries:
The inquiries section contains a list of lenders who accessed the borrower’s credit report within the last twelve months. Remember, any inquiries that appear will need to be explained in a letter of explanation by the borrower.

Next week, we will discuss some other items to look for. Weeks to follow we will also discuss how to interpret these items and compare them to program guidelines. Stay tuned and make it a great week.

About The Author

Daniel Garcia - As an NAMP® staff writer, Daniel Garcia is a loan processing instructor for Loan Processor University (www.LoanProcessorTraining.org). Daniel also currently works for a non-profit housing and community development corporation where he serves as a senior loan officer and heads up the organization’s homebuyer education program. Daniel provides consultation services to other non-profit housing organizations nationwide, training in the areas of mortgage qualification and processing, state and federal laws, adult education training methods, and credit/foreclosure intervention counseling and program setup. He has gained a variety of experience, from mortgage processing and loan originating to loan servicing and loss mitigation. If you're interested in becoming a writer for NAMP®, please email us at: contact@mortgageprocessor.org.

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.