Your credit report information is updated about once each month as your creditors and lenders send in updated details about your accounts. If you make a payment on an account today, it won’t show on your credit report for another few weeks. This can be problematic during the mortgage application process, particularly where your approval, the amount you were approved for, and the terms of your loan all hinge on your credit report information.
To be approved for your mortgage, your lender may require you to reduce a credit card balance, get caught up on past due accounts, or pay off a debt collection. These serious delinquencies can keep you from having your mortgage application approved. However, because credit reporting takes a few weeks, it can take awhile for your credit report to reflect actions you’ve taken to clear up derogatory credit information. In this case, the mortgage lender may request a credit supplement.
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What is a Credit Supplement and Why Is it Necessary?
A credit supplement provides additional information about tradelines on your credit report after the credit report has been pulled. It’s typically used in the mortgage process to be sure the lender has the most recent details about accounts on your credit report. There are several instances where your loan officer would request a credit supplement:
Credit supplements are used to update balance information on your accounts, add missing information to an account, update your most recent payment information or your account status, correct any errors on your credit report. While, you may know and be able to provide details about all the accounts on your credit report, the loan officer can’t take your word for it. They must verify the accuracy of your accounts with your creditors directly through a credit supplement. Note that lenders may not be able to complete a credit supplement for accounts that aren’t showing on your credit report.
How Does a Credit Supplement Work?
A credit supplement must be initiated by the loan underwriter. As a borrower, you’ll need to provide copies of any documentation related to the account. Being as specific as possible ensures the best results to the credit supplement.
Once the loan officer requests a credit supplement, you’ll have a conference call with the credit bureau and the creditor of the account in question to confirm the most recent information about your account. You must be present for the conference call so the creditor can confirm your identity and you can give your permission for your information being released for the credit supplement. This way the information is verified and the credit supplement given to the loan underwriter so you can move forward in the loan process. The results of the credit supplement depend on the creditor being willing and able to provide the credit bureau with updated information on your account.
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If the lender has to request a credit update for more than one account on your credit report, you’ll have to be present for multiple conference calls.
In addition to the credit supplement, you may also have to provide a letter of explanation to confirm that you haven’t opened any new accounts – or to explain any accounts that you have opened – since your credit report was issued . Otherwise, if you’ve opened any new accounts, the underwriter may have to pull a credit report again before your loan closes to reasses your mortgage application.
How Long Does a Credit Supplement Take?
A credit supplement is the fastest way to provide your loan underwriter with your updated account information. Credit supplements can be completed in five business days or less if the request is made in writing. Online and phone credit supplemental requests can often be completed in less than a day. This is especially helpful if you need the information updated quickly so your home purchase can close on time. By comparison, if you wait for the credit bureaus to update your credit report on their own, it could take between 30 and 45 days for your credit report to update.
The credit supplement process usually moves quickly. If there’s a delay, you can contact your loan officer to inquire about the status of the credit supplement.
Is a Credit Supplement Bad?
Being asked to complete a credit supplement can catch you off guard, especially if you were under the impression that everything was ok with your credit report. Don’t panic if your mortgage loan officer says a credit supplement is needed to move forward. A credit supplement isn’t bad. It doesn’t mean you’ll be denied. It only means that your credit report information isn’t complete enough for your mortgage to be approved. Because the mortgage lender receives updated, hopefully more positive, information about accounts on your credit report, a credit supplement can help you get approved for a mortgage or to get approved for better terms.
Having to complete a credit supplement can feel like a nuisance, especially since you want to get done with the mortgage process as smoothly as possible. It can increase the amount of time it takes to complete the loan process. On the plus side, it can be helpful in situations where your credit report information is outdated. For example, if your credit report shows your student loan payments are higher than they actually are, it will affect your debt-to-income ratio and could disqualify you for the loan. A credit supplement will provide the accurate student loan payments and your debt-to-income ratio can be calculated correctly.
Without a credit supplement, the loan officer may only be able to approve you for a certain loan amount, require a larger down payment from you, assign a higher interest rate, or they may deny your application all together. If the credit supplement provides negative information about an account, you may have to take care of the issue before your mortgage application can be approved.
Is a Credit Supplement Avoidable?
While a credit supplement isn’t bad, you understably want to move through the mortgage process as quickly and smoothly as possible. Being proactive with your credit reports can reduce the chances that the loan officer will ask for a credit supplement.
Review your credit reports before you apply for the loan so you have time to clear up any information that could prevent you from getting approved. Pull your credit reports several months before you apply for the loan so you have enough time to take care of any problem accounts. Don’t assume everything on your credit report is good enough to qualify for a mortgage simply because you pay your bills on time. Creditors make mistakes with credit reporting more often than you think. Not only that, cases of fraud or identity theft can go undetected for months and can affect your credit. Check your credit reports to be certain all the information is complete and accurate.
You can order your credit reports from each of the major credit bureaus for free by going to AnnualCreditReport.com. This is the centralized website set up for consumers to get their free annual credit reports as granted by law. Or, if you’ve already obtained your annual credit report previously this year, you can purchase your credit reports from any of the credit bureaus.
The loan officer will review all three of your credit reports, via a tri-merge credit report, so make sure you order a copy of your credit reports from Equifax, Experian, and TransUnion.
Once you have your credit reports, go through your each of them thoroughly to verify all the information is accurate and up to date. It may take several days to completely comb through your credit reports, but the more thoroughly review your credit reports, the more you can be sure all the information is accurate.
If you find errors on your credit report, you can dispute credit report errors online or by mail to have the credit bureaus investigate with your creditors and update your credit reports accordingly. Provide the credit bureaus with copies of any proof that you have supporting your dispute. This helps ensure the dispute returns in your favor.
In addition to reviewing your credit reports, you should also avoid applying for any new accounts in the months leading up to your loan application. In fact, it’s best to wait until after your loan closes to apply for any new credit. Otherwise, the loan officer may have to request a credit supplement for the most recent details on these accounts.
This doesn’t completely guarantee the mortgage loan officer won’t have any questions about your credit report information, but it reduces the likelihood that you’ll need a credit supplement to complete your mortgage loan.
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