Credit Report Problems That Scare Mortgage Lenders

Lidia Staron  |

Thinking of buying a new home? It’s probably your most expensive purchase and therefore, you need the help of a reputable mortgage lender to help finance your dream home.

But finding one is not an easy proces. Not all lenders are going to approve your loan request and it would take some time for them to evaluate your records to see if you’re a good candidate for their loan offers.

How Your Credit History Impacts Your Mortgage Application

Speaking of records, one of the major factors that will certainly affect lender’s decision to approve your loan request is your credit card report. After all, it’s says a lot about your financial status, spending habits, and ability to pay your dues on time. Furthermore, your credit history contains information about your past debts and creditors and other public records that indicate financial troubles you’ve gone through in the past, such as bankruptcies, late or missed payments, and foreclosures.

While the Fair Credit Reporting Act requires all credit bureaus to remove most entries in your credit report after seven years, and thus will no longer affect your credit score, things like tax liens, bankruptcies and judgements can remain in your credit report longer than seven years. And while these are all the major redflags, there are some more problems that could drive mortgage lenders away from approving your loan request.

Credit Card Report Problems Homebuyers Should Avoid

History of minimum payments.

Your credit card provider is happy to have you pay just the minimum amount due each month because they make money out of it. But lenders can take this against you. That’s because it gives them an impression that you don’t have the ability to pay your balance. It’s perfectly okay to pay just the minimum once in a while. But if you do this out of a habit, it’s not going to do you any good by the time you apply for a mortgage loan.

Having lots of loan applications.

An occasional personal loans online to cover an home repair or an important purchase is definitely okay. But running to different credit card companies for loan applications signal that there’s something going on. It may signal multiple debt obligations, which can greatly turn down any mortgage lender. Card issuers are monitoring accounts more often these days, almost in a monthly basis. Limiting your credit cards to two or three is a great way to improve your credit report and at the same time, gain more in control of your finances.

Being a loan guarantor.

Be careful who you co-sign a loan or credit card with. As a co-signer, you carry the obligation to repay the loan in case the principal borrower fails to do so. Therefore, the failure of the borrower to pay on time can reflect on your report too. If he misses, stops paying, or pays late, it will be as if you did it all.

Making too many inquiries.

Current mortgage lending rules suggest that even just one dispute for whatever reason or amount can delay or kill a loan. This came out from a common issue in the past wherein borrowers try to raise their credit score by disputing negative yet accurate, information on their credit card reports. Furthermore, multiple credit inquiries can damage your credit score. When applying for a mortgage, make all your applications with 45-day period wherein all inquiries are considered just ‘one’.

A short sale.

Did you know that a short sale can be a red flag in your credit card report just as a foreclosure? Here’s the thing - lenders will report the short sale to major credit bureaus as a “settlement” or a deed in lieu of foreclosure. You could lose around 100 points after a short sale, pulling your score really down and increasing your chances of being categorized as “subprime” borrower.

Late payments.

Late payments are also a red flag in your credit card report and it’s a surefire way to have your mortgage application denied. After all, payment history accounts for 35% of your credit score. Missed payments can lower your score by more than 100 points. Furthermore, collections and court judgments from your other financial obligations (such as unpaid hospital bills) can cause your score to drop even further.

Remember than when you begin a mortgage process, one of the key steps your lender will take is to review your credit card report. They will do it even before they interview you. Negative changes in your report can impact your application and turn down your hopes of buying your dream home. By being mindful of your credit report and staying away from these problems, you increase your chances of securing a mortgage loan. If possible, check your credit 6 months to a year before applying for a mortgage loan to give yourself time to fix errors that can affect your application.

DISCLOSURE: Finding one is not an easy process. Not all lenders are going to approve your loan request and it would take some time for them to evaluate your records to see if you’re a good candidate for their loan offers.

The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:



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