No matter how sincerely you promise to reimburse a lender, you probably won’t get a mortgage loan unless you have a good record of credit. But how familiar are you with the mechanism behind the credit-reporting industry? Here are three things you may not have realized.
There are more than three credit bureaus
Most people know about the major ones — Equifax, Experian and TransUnion — but there are other credit-reporting bureaus. Some of them deal with specialty areas, such as whether you’re a good or bad insurance risk, but the big three don’t control all credit decisions. And none are government agencies. They’re businesses that collect and sell information.
Credit reports don’t include every debt you owe.
Different credit bureaus create different credit reports on you. They get the data for these reports from lenders, who may or may not report the debt to all of them. While your car loan and credit-card debt will likely appear on the major bureau reports, utility bills and similar smaller debts may not make it. That’s why it’s wise to check more than one report.
You still owe debts that don’t appear on your credit report.
Related to the previous section, when a debt is missing or falls off your credit report, that doesn’t mean you can ignore it. Maybe the lender didn’t report it to that credit bureau, or maybe the statute of limitations for how long that item can stay on your credit report passed. Either way, you still owe the money.
Though it may seem like your creditworthiness is computed using a magic black box, there’s actually a rhyme and reason to your score. The information reported to the bureaus offers an objective prediction of your future behavior.
If you’re denied a loan because of your credit, ask your lender how you can improve your chances in the future.