What happens when a mortgage lender checks my credit? | Consumer Financial Protection Bureau (2024)

FAQs

Why would a mortgage be declined after AIP? ›

The AIP is not a guarantee of mortgage approval – it's a preliminary assessment. Usually a decline happens because the lender uncovers additional information during the formal application process that they weren't previously aware of.

Inquiries can be seen by other lenders when they check your credit. Inquiries tell other lenders that you are thinking of taking on new debt. An inquiry typically has a small negative effect on your credit scores. Inquiries are a necessary part of applying for a mortgage, so you can't avoid them altogether.

They want to make sure you have a track record of on-time payments that could indicate you'll be a responsible mortgage borrower. If you have any old payments that were late or missed, the lender may ask you for an explanation. Credit utilization: Your credit utilization ratio is a factor mortgage lenders consider.

We provide your credit information, in the form of credit reports, to lenders and creditors to help them determine your creditworthiness. We also provide credit reports to you, so you can better understand your credit situation.

Red Flag #1: When they offer you a rate that's lower than the APR. When a mortgage's APR is much higher than the actual rate, it means that the fees are a lot higher, too - and you'll be paying them over the life of your loan. A low rate might be enticing, but you have to consider the long-term cost.

What's an Agreement in Principle? An AiP lets you know whether we'd be willing, in principle, to offer you a mortgage for a certain amount. It doesn't involve a hard credit check, so it won't affect your credit score.

The issuer will likely pull from one or all three of the credit bureaus — Experian, Equifax or TransUnion.

Lenders may use your credit report information to decide whether you can get a loan and the terms you get for a loan (for example, the interest rate they will charge you). Insurance companies may use the information to decide whether you can get insurance and to set the rates you will pay.

Address details e.g. electoral roll information for your current address, plus any previous addresses. Financial credit agreements e.g. loans, credit cards, mortgages and overdrafts. This includes any missed or late payments. Public records e.g. county court judgments (CCJs), bankruptcies or insolvencies.

Before completion, lenders typically perform various checks to ensure everything is in order. These checks may include verifying your employment and income details, confirming the property valuation, reviewing the mortgage offer, and assessing any outstanding conditions or requirements.

How far back do mortgage lenders look at credit history? ›

There are many factors that lenders consider when looking at your credit history, and each one is different. The typical timeframe is the last six years.

But it isn't just about your credit score. Mortgage lenders will want to see if you can afford your mortgage before they lend you the money, and be less of a risk to them. So as well as looking at your credit history they will look at how much you earn, and how much goes out.

Your credit reports are important pieces of financial information that help lenders measure your level of credit risk, or the likelihood you'll pay your bills on time.

Being blacklisted can have a very bad effect on your life. If you are blacklisted you will probably find it very difficult to buy anything on credit or get any type of finance. It might even be difficult to open a bank account or get a job if you have a poor credit record.

If you are unable to pay off debts, your name will be flagged by the credit bureau, and added to a blacklist; and it will be more difficult for you to get loans in the future. The simplest way to clear your name from the credit bureau is to pay off the debt.

However, even though prospective homebuyers get pre-approved for a mortgage before shopping for homes, there's no 100% guarantee they'll successfully get financing. Mortgages can get denied and real estate deals can fall apart — even after the buyer is pre-approved.

An AIP doesn't guarantee you a mortgage and you can still apply for a mortgage Agreement in Principle with other lenders. However, the amount offered can give you an idea of your potential budget. If a provider refuses your mortgage agreement in Principle, it's not the end of the road.

High level of debt – If you already have a lot of debt, lenders may be unwilling to let you borrow more, as this may be unmanageable for you. Low deposit – You usually need a minimum of deposit of between 5% and 10% to get a mortgage. Anything below this can see your mortgage declined.

Once you have an AIP you can save your details so, when it's time, it's easy for you to apply. You can apply online by retrieving your saved application or completing a new one. Then, select the mortgage you want and begin your mortgage application.