Credit Reports

Lenders review the applicant’s credit report and analyze how credit has been used in the past and how credit is currently being utilized. Credit reports are comprised of information from the three national credit reporting agencies: TransUnion, Experian, and Equifax.  The credit report consists of the borrower’s identifying information. This will include present and previous addresses. The bureaus will also report information received directly from the creditors which includes information such as: name of the creditor, credit limit, balance due, established length of credit, and the payment history. The credit report will also contain a section for any public records filed against the borrower as well as any public records in the borrower’s name. The public records include judgments, tax liens, and bankruptcies. Due to all the data compiled in a credit report, the accuracy is important because the history is reflected in the credit score. The first step in the loan process is to obtain a credit report. The loan officer will review the report with the borrower to ensure the accuracy and address any erroneous reporting’s which need to be corrected.
 
 
Credit Scores
 
A credit score or FICO is a numerical figure which represents the applicant’s creditworthiness. The credit score can range from 300 to 850. A higher score is generally better as this represents the borrower’s ability to repay a debt in a timely matter. The scoring models differ slightly however take into consideration similar factors in generating a credit score. The data is grouped into categories which have a weighted percentage on the credit score. MyFico.com provides the following categories.

1.         Payment history represents 35% of the credit score

• Is the borrower repaying debt as agreed? The payment history on all accounts is taken into account along with the presence of derogatory reporting’s including public records. Derogatory payments are reflected in 30 day increments (ex. Over 30 days late, over 60 days late, etc.) The number of late payments, number of past due items, and the amount past due can all result in a lowered score.

 2.         Amounts owed represents 30% of the credit score

• This percentage is made up of the amount owing on specific types of accounts along with the number of accounts. Lack of a specific type of account or high amounts owed on an account can have an adverse affect on the credit scores. The proportion of balances to credit limit is also calculated and a high proportion can lead to a lower score.

3.         Length of credit history represents 15% of the credit score

• The length of credit history gathers information regarding the dates accounts have been opened and the date since account activity. Having established credit history will have a positive effect on scores while recently opening too many accounts can have a negative impact.

4.        New credit represents 10% of the credit score

• When opening new credit the borrower’s need to proceed with caution. Lenders interpret too much new credit as a risk to the borrower being able to repay debt.

5.        Type of credit used represents 10% of the credit score

• The credit report should contain various types of accounts. Installment loans, mortgages, and credit cards all play a role in the type of debt which is factored into the credit scores.

Credit Services
The role of Nova’s credit services team is to assist the borrower in improving their credit scores in order to qualify for a home purchase or refinance. The credit services team will work directly with the loan officer and borrower to have any inaccurate reporting’s corrected at the bureau level. Credit services will also review the credit report for discrepancies between how the credit reporting agencies are reporting data. The key to improving credit scores is to keep balances low, make timely payments, and ensure the credit report is reflecting accurate information.