You may be surprised to learn that most banks don’t report your mortgage balance or repayment history to a credit bureau agency. When you review your report your mortgage will not appear on it. There is no mistake here. This also means, similar to overdrafts and private loans, a lender reviewing your application for credit has no way of knowing unless you tell them that you have a mortgage that’s using up cash each month from your income by reviewing only your credit report. There are ways they can find out if you have a mortgage, though it is usually not done these days. Lenders usually don’t have the time available to verify such data. It is very common for them to take a client’s word for it when they say they are owners of their own home, clear-and-free, if they are also able to explain how they did it (i.e., their parents gave them an earlier inheritance; it was a wedding gift; the house was passed down to them through an inheritance from a grandparent – perhaps they did very well on the stock market, etc.).

It is prudent to tell the truth early on in your discussions with banks, to establish trust in your relationship with them. Revealing all unknowns in your relationship upfront provides continual comfort going forward for financial institutions, referred to as “knowing” their client. Small details, later on at times, can be overlooked when they know you. (There is a great disadvantage to revealing all, which we will discuss later on in this series).

When you are offering your home as collateral security there is a title search performed. If you have lied about not having a mortgage (or bent the truth in any way if that sounds any better to you) it will be discovered and your relationship with the bank will be permanently compromised. You likely will be asked to find another bank for all of your needs. When trust has been compromised, they likely will not do business with you again.

Banks are not allowed to share what they know about you to other banks, or lending institutions. Your file is confidential to them, as they report your repayment history to the credit bureaus only. Many people don’t fully understand this, and will complain that the banks act as a collective “big brother” who is watching everyone – this is not true and the only information they share is with the credit bureaus regarding your credit limits and your repayment history.

This means that if you have a poor relationship with one lending institution, they will not be allowed to spread this information and share it with other banks to warn them of a possible high risk client walking through their doors. This also provides a second chance for you to start fresh with a new bank if you’ve had some problems with the one you are dealing with now.

I don’t recommend anyone lie, or distort the facts. That doesn’t do anybody any good. I share these uncommon facts to illustrate that while most banks rely heavily on information your credit report file contains about you, sometimes it works against them through its incompleteness as much as it works against you when the information on your file is false. Though credit report information is weak at times, they are still the only regulated financial repayment history that modern banking systems have to rely on, that is arbitrarily collected from various sources.

The credit bureau was not designed to be a summary of all of your loans, credit cards or bank accounts. It was designed to simply act as a reference for would-be creditors to review what other lenders have experienced with you as their client. Banks still depend on their own ability to encourage you to “spill the beans” on all of the remaining details regarding your financial status, as they can’t review a complete picture solely from the credit agency reports. They need to get behind the information on the credit bureau agencies reports, while discovering the reasons behind the numbers that are only available through you, and what you say about them.

In a sales environment within a bank, it is also likely that they would not perform any extra diligence to search the title of your property to support your comments that you own it clear-in-free. They would simply make a note in your credit application that it was an earlier inheritance gift from your baby boomer parents (or whatever reason you could think of) and it is likely not to receive further attention so long as you don’t attempt to use the real estate as collateral.

Credit Agencies are Evolving in Modern Times

Records from a variety of businesses and their information are gathered by credit agencies. Financial institutions, retailers, and other credit issuers pay fees to belong to a credit bureau. They supply information about consumers as well as consult records of the bureau when considering their own applications for credit.

Credit bureaus such as Experian, Equifax, and TransUnion do not make the decision about whether a consumer receives credit of course. That’s up to the lender. Credit agencies only provide a historical picture, organizing all of the reported repayment history available on individuals, which has been collected over the years. Information can remain up to 20 years depending on what kind of information it is.

Their systems have evolved to include unbiased predictive scores to project a client’s future credit risk, or potential fraud. These predictions are driven by the information their file(s) contains on you. It also considers the number of times your file has been requested by creditors, how often your address has changed, your employment history, and any formal credit collection, judgment, or bankruptcy issues. They do not collect or exchange information regarding criminal records or charges (just in case you were wondering).

As credit bureau systems and filters continue to evolve, lending institutions depend on them more and more when making decisions in their own lending processes. Also, keep in mind that it doesn’t matter what state you live in, or move to. There is only one file with each credit bureau agency that contains your personal information. Any address changes you have made will be immediately be noted on their reports for all lending institutions to see next time you request more credit.

Credit agencies provide information to qualifying companies after being paid their fee. In some states auto insurance companies that request a copy of your credit bureau report to determine if they should raise your premiums or not each year, or even keep you as an insured driver. By doing this they are making the assumption that if you poorly manage your credit rating, something extremely valuable to the health of your financial future, then perhaps you are an irresponsible driver and are at greater risk of causing an accident. If the information was incorrect on your credit report, or out of date, your auto insurance rates could increase because of it. You must remain remain on guard that this type of financial profiling is not detrimental to you.

How to Get a Copy of Your Credit File (Report)

Unless you request your own credit file report and verify each trade line how can you be sure your credit history is accurate? A great question, is it not. Now I would like to speak a little bit about how to get a copy of your credit report from the agencies we have been discussing.

To obtain a copy of your credit file place a call to the primary bureaus or visit their web page for further information on your file. In some states, your credit file information can be given out over the phone or received by mail. The local bureau’s telephone number is usually listed in the white pages of the telephone book. You will need proper identification and may be required to make your request in writing to assure your file is kept confidential. In most cases a copy of your credit report is available free of charge. If you’re not comfortable understanding how to read the information it contains, call to arrange an appointment by phone to review your credit file with a representative of that bureau. It is important to review and proof the information it contains regularly. This helps prevent people with similar spellings to your name having their credit information mixed in with yours. Believe it or not, this does happen from time to time.

Personally, I would stay away from companies who advertise their services as Internet-based credit report tracking which supposedly monitor your credit rating for you. These services charge a fee for them to access and monitor your credit report for changes. If a change occurs you are notified by e-mail. You are able to monitor your report personally for changes any time you want during the period of time you have paid for through their website.

I prefer to call the credit agencies myself, and monitor from the source. This way, I’m not completing personal information on the web site of a service provider I know nothing about. It would be hard to prove if these are legitimate companies. Inaccurate information collected from creditors will not be corrected on your file until you initiate the investigation – that is something you need to understand – fully and completely.

Continued in the Carol’s Borrowing Series Category of Clf.