Understanding Credit Reports Part 2

Written By: Daniel Garcia

Last week we began discussing the importance of understanding how to read a credit report. As stated last week, no doubt we can all agree that as processors we need to know how to read and interpret information on a credit report. So let’s begin the second part:

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Public Record and Collection Items
Public record information from state and county courts, and information on overdue debt such as bankruptcies, foreclosures, suits, wage attachments, liens and judgments will be indicated in the Public Record section of the credit report. It is extremely important to pay close attention to this section. Make notes of the dates of any items that appear, as they may have an effect on the loan approval. For instance, if there is an open judgment, you should know that you may not get an AUS Approval or more importantly and Underwriting Approval. Even if your AUS does approve it, you may be conditioned to have the borrower to satisfy it before closing. Maybe a bankruptcy shows up on the report. Has enough time elapsed since it’s been discharged or dismissed? If an open tax lien is indicated, you know that you will not be able to obtain approval until it has been satisfied. Definitely, these are some things to keep in mind.

Satisfactory Accounts and Negatives Items

How your report is formatted will depend on the company you use to generate the report. Some companies will separate the negative items from the positive ones. If it’s a joint credit report, some companies will group joint accounts together and individual accounts together. So needless to say, really pay attention to how this is done so that you do not miss anything.

Another thing some companies will do is somehow indicate the negative item by either separating them or even shading in the account. The negative accounts will be listed showing when a late payment occurred and how late is was, the balance on these accounts, and if this account was a charge-off or went to a collection agency. It will usually have the address of the creditor and the account number listed as well. To these negative items is very important. If your underwriter questions any of these, you will want to be prepared.

Credit Report Formats and Codes
All in all, you want to get yourself very familiar with the format of the reports you pull. Most reports will contain the same information; it’s just a matter of figuring out how they format it.

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Many reporting companies use certain codes to mean different things. You can contact them to get a list of those codes. Make sure you understand what they mean. For instance, if there is a late payment indicated on the report you may notice something like this in the payment history section: “08/12 2”. That extra “2” after the late payment date is code for a 30-day late payment.

Obviously the best way to understand a report is to just carefully review it and know what the codes mean. Once you can get the hang of understanding the information shown, you will not have a problem reading any report, regardless of the formatting.

Stay tuned next week as we will bring you more information to help you become a better processor. 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 NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® 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 NAMU®. Nothing contained in this articles should be considered legal advice.