How Do Lending Companies Run A Credit Check For Home Loans

The first thing that a lending company does when you apply for a loan is to check your credit score. Whatever type of loan you’re applying for, a credit check is an SOP (Standard Operating Procedure) for all applicants. 

If you are planning to apply for a home loan, the mortgage lender will likely pull out information from your credit record.

Lenders do this process to protect the welfare of their businesses. Since not all borrowers who apply for a loan are eligible, a credit record is vital. It tells the lenders if you are capable of paying back a loan. 

The Process of Credit Check

Lenders will check your credit record twice: the initial credit check and the second credit check. During the pre-approval process, the lender will look into your credit record to check for red flags to help them decide whether to grant your application or deny it. 

The lender then asks you to provide a letter of explanation for each inquiry on your credit record. Your loan application will take time to be accepted. During this waiting window, the possibilities of new credit incidence may take place. Before closing the deal, the lender examines the borrower’s credit record for the second time. 

If the initial result matches the second result, the closing will take place. House buyers should be aware that the lender will run a second credit check so that they can mind their financial transactions. 

What Do Lenders Look for?

Lenders look for specific information when they evaluate your credit scores. Having a good credit score will not conclude the evaluation, but instead, lead to lending companies to dig deeper for information. 

Here is the list of information your lender needs. 

1. Payment History

Mortgage lenders will examine your payment history from all your debts, such as credit cards, various loans, and everything visible on your credit report to assess your attitude towards paying debts. They will check if you have a record of late payments and other penalties too. 

2. Latest Applications

Lenders will check if you applied for new loans, such as cash advance loans or personal loans, other than the one you are applying under their company. 

Too many loan applications that show up on your credit report are red flags for lenders and indicate that you currently have a financial problem. Having too many existing loans will make you look like you have payment troubles.

3. Credit Usage

Lenders will check how you utilize your credit. Excessive usage of your credits will make you look overleveraged, and this means a risk for lenders. Most lenders do not want borrowers who spend more than 30% of their credit. 

4. Major Derogatories

There are so many factors that will negatively affect your credit record. This includes late payments, delinquent accounts, and, most especially, bankruptcy. However, the derogatory record will not end on those factors. There are other factors that can hurt your record. 

5. Dispute

Dispute statements will not do any good on your credit record. Lenders look at these factors negatively, which will affect your loan application. If you have existing disputes on your credit report, wait until the dispute is resolved before applying for a mortgage.

6. Being an Authorized User 

Being an authorized user can affect your credit record. How you use your credit card will reflect on your record. If you are reckless, it won’t do good on your record. However, lenders may not treat this as a red flag since it is not your account.

Types of Credit Check

Aside from knowing how lenders process your credit check and what information they need, it is also essential to be familiar with the two types of credit checks. This will help you understand the outcome of the credit search the lender made to your credit background. 

1. Soft Credit Check 

Soft credit checks are performed by lenders to look for particular information. Conducting this review does not require your permission. The lender will base their decision regarding your application on the soft credit check result. 

2. Hard Credit Check 

A hard credit check is when the lender decides to investigate your credit background to perform a complete search of your report. Each time a hard check is performed, it will automatically be recorded in your report. In this check, every company that examines your report will be able to see that you have applied for a loan. 


Having a good credit record will help you acquire any loan quickly. Moreover, as a borrower, you should mind your obligations. It is your responsibility to pay what you owe on time. Otherwise, it will negatively affect your credit score, ultimately damaging your financial reputation in the long run.

Author’s Bio

Tiffany Wagner is a content writer and blogger who focuses on business, finance, and real estate. During her free time, Tiffany loves to chill and watch her favorite TV series or read her favorite novels.

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