Your credit report, score, and history are all major factors when it comes to applying for a loan, so it’s important that you understand how credit works, and how will be analyzed. Your mortgage broker will analyze your credit report as soon as it is obtained, and will ensure that the credit report they have is in fact yours.
A broker will first look for any judgments against you and collection accounts. These will require full explanations, or may have to be paid down before you are eligible for a loan.
Your lender will also look at the number of recent inquiries and why, as this may suggest to them that you have recently applied for credit elsewhere and were denied. They will be comparing your debts and the ages of your accounts. If you incurred debt very recently, they may want to know what the money was used for. They will check to see if you have made many late payments, and when this happened. Every lender has their own acceptable limits for these factors so your broker will check to see that your accounts fall within these limits. Your broker will also ensure that they have a completely up-to-date credit report. This is because a borrower may open a new account or incur new debt, and thus change their financial status, if too much time elapsed between when a report is produced and when it is analyzed.
Finally, your credit information is your personal, private financial data. Your loan officer or mortgage broker should never share your information with any outside party, including a real estate agent or firm, without your express permission.
Bad credit is a big issue for many borrowers, and how it is handled will depend primarily on the lending institution. People are capable of change and your lender will consider this as a possibility. Basically, this means they will look at how long ago your credit was negatively affected and compare that to your recent financial activity. If you have shown reasonable improvements, and have an acceptable explanation as to why your credit was negatively affected, it may have less of a bearing on your application. For instance, an old debt that shows you have more been making timely appropriate payments will be less likely to have a large impact on your overall credit worthiness.
Your lender will also look at what caused the bad credit. How did you get yourself into that situation and what have you done to change that? If the credit trouble is very recent and there is not enough information (or time passed) to show you have made appreciable differences in your borrowing behavior, you will likely not be approved for anything but a debt re-structuring loan.
Some lenders will accept a borrower with bad credit, but will add particular borrowing stipulations. Common credit stipulations include requiring a larger down payment, a tighter limit on debt to income or loan to value ratios, and requiring additional forms of collateral.
A professional mortgage broker will usually not provide you with a copy of your credit report. If you have past judgments, poor credit, or are worried about other potential aspects on your credit report, you are encouraged to contact the credit bureaus yourself to obtain your own copy.
Your credit report will take precedence over your word, so if there are discrepancies between the debt you should have and what is shown on your report, you must contact the credit bureau to have these issues addressed. If you are unable to change the information on your credit report, be aware that the information will be trusted over anything you might tell your broker.