How is information in my credit report used by mortgage lenders?

With all the effort put into collecting all your credit information, you may wonder how this information is used. Let’s look at the different sections of your credit report as a potential lender would.

The lender confirms that your personal information appears to be in order. Your consumer statement probably doesn’t hold much weight in helping a mortgage lender decide on whether you are a good lending risk, though it could convince a lender to consider a higher interest loan if the remaining information measures up to a lender’s standards.

The next four areas of your credit report hold the most weight. The lender is going to look at whether you always pay on time. If there are delayed payments and skipped payments, they will reduce your credit worthiness. If you have been paying faithfully over the past 12 months or more, and the payment problems are farther back in your history, a customer statement explaining those problems will hold more weight than if the payment irregularities are recent.

Everyone makes a miscalculation in their bank balance once in a while, so one NSF cheque probably won’t do much harm. If there have been frequent NSF cheques reported, a mortgage lender will probably consider you a very poor risk.

Lenders also look for evidence of secured loans, bankruptcies and/or judgments against you. This information reveals whether you are able to handle another loan, whether you know how to handle money and whether your life is stable.

Finally, lenders look at how often you have applied for credit. Opening many credit accounts may be seen as a sign that a borrower is in financial trouble. The more inquiries a lender sees on the credit report, the more concerned the lender will be that you may run into financial difficulties which could lead to foreclosure.

Learn about who can access your credit report.