Mortgage Basics
Understanding Your Credit Report
A comprehensive guide to understanding your credit report from NMHL mortgage experts.
<p>A credit report is a detailed, three‑year‑plus history of your borrowing activity. It is compiled by the three national credit bureaus—Equifax, Experian, and TransUnion—based on information supplied by lenders, collection agencies, public records, and even some utility companies. Each bureau may have slight variations, which is why you should review all three.
</p>
<h3>Core Components of Every Report</h3>
<ul>
<li><strong>Personal Identifiers:</strong> Name, current and former addresses, Social Security number, date of birth.</li>
<li><strong>Account Summary (Trade Lines):</strong> Every credit account—credit cards, auto loans, mortgages, student loans—listed with the original creditor, account number (partially masked), date opened, current balance, credit limit, and payment status.</li>
<li><strong>Payment History:</strong> A month‑by‑month record of on‑time, late (30, 60, 90+ days), or charged‑off payments for each account over the past 24 months.</li>
<li><strong>Credit Inquiries:</strong> Hard inquiries (when a lender checks your report for a loan) and soft inquiries (pre‑approval checks, personal checks).</li>
<li><strong>Public Records & Collections:</strong> Bankruptcies, tax liens, civil judgments, and collection accounts.</li>
</ul>
<p>Understanding each of these sections is the first step toward taking control of your mortgage eligibility.</p>
<p>Federal law (the Fair Credit Reporting Act) entitles you to one free report from each bureau every 12 months. The official portal is <a href="https://www.annualcreditreport.com" target="_blank">AnnualCreditReport.com</a>. You can also request directly from each bureau’s website, by phone (1‑877‑322‑8228), or by mail using the Annual Credit Report Request Form.</p>
<h3>Step‑by‑Step Retrieval</h3>
<ol>
<li><strong>Gather Identification:</strong> Full legal name, Social Security number, and current address.</li>
<li><strong>Visit AnnualCreditReport.com:</strong> Select the bureaus you want (all three is best).</li>
<li><strong>Answer Security Questions:</strong> These may involve past loans, addresses, or other personal data.</li>
<li><strong>Download & Save:</strong> Save each PDF in a secure folder labeled “2026 Credit Reports.”</li>
</ol>
<p>Tip: If you’re actively shopping for a mortgage, request your reports within the same 30‑day window. This locks in a “credit freeze” period for hard inquiries, preventing multiple lenders from dragging your score down.</p>
<p>Now that you have the PDFs, let’s break down what you’re looking at. Below is a practical example of a typical credit‑card trade line:</p>
<blockquote>
<p><strong>Creditor:</strong> Capital One<br>
<strong>Account #:</strong> 4*********1234<br>
<strong>Opened:</strong> 03/2015<br>
<strong>Credit Limit:</strong> $5,000<br>
<strong>Current Balance:</strong> $1,200<br>
<strong>Payment Status:</strong> Current (30‑day late 0 times in last 24 months)</p>
</blockquote>
<h3>Key Metrics to Spot</h3>
<ul>
<li><strong>Account Age:</strong> Older accounts boost the “length of credit history” factor (15% of your score).</li>
<li><strong>Utilization Ratio:</strong> Balance ÷ Limit. Aim for ≤30% on each card and ≤30% overall. In the example, utilization is 24% (1,200 ÷ 5,000).</li>
<li><strong>Payment Flags:</strong> Any 30‑day late mark appears as a negative event for up to 7 years.</li>
</ul>
<p>When you see a “hard inquiry” listed, note the date. Too many hard pulls within a 12‑month period can lower your score by 5–10 points, especially if you’re not shopping for a mortgage (where multiple inquiries are treated as one).</p>
<p>FICO® and VantageScore® use five categories to calculate your score. The percentages below are the same for both models, though the exact algorithm differs.</p>
<ul>
<li><strong>Payment History – 35%:</strong> The single most important factor. One 30‑day late payment can drop a 720 score to 690.</li>
<li><strong>Credit Utilization – 30%:</strong> Keep total utilization ≤30%; for optimal rates, aim for ≤10%.</li>
<li><strong>Length of Credit History – 15%:</strong> Older average age = higher score. Closing your oldest account can hurt you.</li>
<li><strong>Credit Mix – 10%:</strong> A blend of revolving (credit cards) and installment (auto, mortgage) accounts is favorable.</li>
<li><strong>New Credit – 10%:</strong> Each hard inquiry costs ~5 points; opening several new accounts signals risk.</li>
</ul>
<h3>Mortgage Thresholds (2026 Data)</h3>
<table border="1" cellpadding="5" cellspacing="0">
<tr><th>Loan Type</th><th>Minimum FICO</th><th>Typical Rate Advantage</th></tr>
<tr><td>Conventional (30‑yr fixed)</td><td>620</td><td>0.25% lower rate vs. 580‑619</td></tr>
<tr><td>FHA (3.5% down)</td><td>580</td><td>Qualifies for 3.5% down; 620+ gets 3.0% down</td></tr>
<tr><td>VA (Veterans)</td><td>580</td><td>No down payment; lower rates for 620+</td></tr>
<tr><td>USDA Rural</td><td>640</td><td>0% down, but higher income limits</td></tr>
</table>
<p>NMHL’s <em>Credit Boost Program</em> helps borrowers with scores between 580‑639 improve by 20‑40 points through targeted counseling and a short‑term secured credit card.</p>
<h3>My Score Is “Good Enough,” So I Don’t Need to Check My Report</h3>
<p>Even a “good” 680 score can hide errors—mis‑reported late payments, duplicate accounts, or outdated collections. One error can cost you 30–50 points, pushing you below a lender’s threshold.</p>
<h3>Closing an Unused Credit Card Improves My Score</h3>
<p>Closing a card reduces total available credit, instantly raising utilization. If you have a $5,000 limit and a $500 balance, closing that card jumps utilization from 10% to 20%—a potential 5‑point drop.</p>
<h3>All Hard Inquiries Are Bad</h3>
<p>Mortgage‑shopping inquiries made within a 45‑day window are treated as a single inquiry by most scoring models. So, if you’re comparing rates, you can safely apply to three lenders without penalty.</p>
<h3>My Credit Report Is the Same as My Credit Score</h3>
<p>The report is the raw data; the score is a mathematical output. Two lenders can see the same report but generate slightly different scores because they use different models (FICO vs. VantageScore).</p>
<p>Understanding these myths helps you avoid costly missteps and positions you for the best possible loan terms.</p>
<h3>Step 1 – Pull All Three Reports and Spot Errors (Day 1)</h3>
<ul>
<li>Mark any inaccurate late payments, duplicate accounts, or outdated collections.</li>
<li>Use NMHL’s <em>Free Credit Review Tool</em> to upload PDFs; our specialists will flag red flags within 24 hours.</li>
</ul>
<h3>Step 2 – Dispute Inaccuracies (Days 2‑14)</h3>
<ul>
<li>File disputes online via each bureau’s portal. Include supporting documents (bank statements, payment confirmations).</li>
<li>Follow up; the bureau must investigate within 30 days.</li>
</ul>
<h3>Step 3 – Reduce Utilization (Weeks 1‑4)</h3>
<ul>
<li>Pay down balances to ≤30% overall and ≤10% on any card you plan to keep open.</li>
<li>If you have a high‑limit card you rarely use, make a small purchase and pay it off immediately to show activity.</li>
</ul>
<h3>Step 4 – Build Positive Payment History (Months 1‑6)</h3>
<ul>
<li>Set up automatic payments for all revolving and installment accounts.</li>
<li>Consider a secured credit card with a $1,000 limit; keep the balance under $100 and pay in full each month.</li>
</ul>
<h3>Step 5 – Limit New Credit (Until Application)</h3>
<ul>
<li>Avoid opening new credit cards, auto loans, or personal loans for at least 90 days before you submit a mortgage application.</li>
</ul>
<h3>Step 6 – Leverage NMHL Programs</h3>
<ul>
<li>Apply for the <em>NMHL Pre‑Approval</em> to lock in a rate while you improve your score.</li>
<li>Enroll in the <em>Credit Boost Program</em> if your score is 580‑639; we’ll pair you with a credit counselor and a secured‑card partner.</li>
</ul>
<p>Follow this roadmap, and you’ll be in a stronger position to secure a loan with a lower interest rate, smaller down payment, or both.</p>
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Frequently Asked Questions
A credit report is a detailed record of your borrowing history, including account balances, payment dates, and public records. A credit score is a three‑digit number (300‑850) calculated from that data using a scoring model such as FICO. Lenders look at both: the report for context and the score for a quick risk assessment.
You are entitled to one free report from Equifax, Experian, and TransUnion each year via AnnualCreditReport.com. For mortgage‑shopping, request all three reports within the same 30‑day window and review them at least once before you apply for a loan.
Payment history (35%) is the biggest driver, followed by credit utilization (30%). Length of credit history (15%), credit mix (10%), and new credit (10%) round out the score. A single 30‑day late payment can drop a 720 score to the high‑690s, while keeping utilization under 30% can add 20‑30 points.
Yes. A mis‑reported late payment or an outdated collection can shave 30‑50 points off your score, potentially moving you from a 4.0% rate to a 4.5% rate on a $300,000 loan—costing you over $7,000 in interest. Dispute errors promptly; the bureaus must investigate within 30 days.
Most scoring models treat multiple mortgage‑related hard inquiries made within a 45‑day window as a single inquiry. However, unrelated hard pulls (credit cards, personal loans) can each cost 5‑10 points, so limit those until after you’re pre‑approved.
NMHL offers the <em>Credit Boost Program</em> for borrowers with scores between 580‑639, providing a secured‑card partnership and one‑on‑one counseling. Our <em>NMHL Pre‑Approval</em> locks in a rate while you work on credit improvements, and our free Credit Review Tool flags errors in minutes.
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