Homebuyers

Understanding Your Credit Report: What Homebuyers Need to Know

Your credit report can feel like a black hole of information, chronicling your purchases and how promptly you have paid them off.

But it’s helpful to think of it more like a financial report card for lenders. It summarizes how well you’ve handled borrowing money to help lenders figure out how likely you are to make your monthly mortgage payments.

What’s on your credit report also factors directly into your credit score. This is a three-digit number, that typically ranges from 300-850. Your score represents how well you have managed your debts.

If you have a long history of paying off what you owe on time and haven’t maxed out your credit cards, the higher your credit score will be. 

Your credit report and score include your payment history and how much money you owe. They are typically compiled by the three major credit bureaus, Equifax, Experian, and TransUnion.

Since lenders use this data to predict how likely you are to pay back a loan on time, credit scores also play a key role in the homebuying process. Your score helps determine whether you qualify for a mortgage, how much money you may be eligible to borrow, and your mortgage interest rate. The higher your score, the lower the rate you may be able to qualify for on your loan.

“Credit scores play a big role in what it takes to qualify for a loan,” said Alex Lazo, a New American Funding sales manager based in Tustin, Calif. “Typically, the lower the credit score, the higher risk you are.”

It’s normal for your score to vary slightly depending on the model used to calculate it or the bureau or lender providing the score, Lazo noted. But generally speaking, the same factors help or harm across the board.

Here’s what you need to know about your credit report.  

What’s included in your credit report:

Payment history

This is one of the biggest factors affecting your score, Lazo said. Missed payments can hurt your credit significantly, with late payments typically reported to credit bureaus once they reach 30 days past due. Accounts in collections also have a negative impact.

Credit card balances

Also known as “credit utilization ratio,” your credit score accounts for how much credit you’re using compared with the total amount of credit available. Avoid maxing out cards whenever possible. Experts generally advise keeping spending at 30% or less of your limit to optimize your score.

Credit history

Older accounts can have a positive effect on your score if they demonstrate a history of on-time payments. That’s why it’s wise to think twice about shuttering an old account. Closing unused credit cards may increase your credit utilization ratio and lower your score.

A mix of credit

While this factor doesn’t have as much of an impact as your payment history and credit utilization, having different lines of credit shows lenders you can handle different kinds of debt. A mix of revolving credit (such as credit cards) and installment credit (like loans) can help boost your score, Lazo said.

New credit inquiries

Every time you apply for a loan, credit card, or other line of credit, it can trigger a so-called “hard” inquiry on your report. That can shave points off your score. Checking your own score, a “soft” inquiry, won’t have an impact.

What’s not included in your credit report:

Salary or job title

Your credit report might list your employer’s name, but it doesn’t show how much you earn or what you do.

(While income doesn’t directly affect your credit score, lenders will likely ask about it as part of the loan application process.)

Bank account balances

Savings and checking account balances aren’t included in your credit report—neither are investments or your purchase or transaction history.

Bankruptcy filings, however, will stay on your report for up to 10 years. 

Rent or utility payments (usually)

On-time rent and utility payments typically aren’t included in your credit report. Some renters opt to use rent-reporting services to build credit by reporting these payments to one or more credit bureaus.

It’s worth noting that new credit scoring models are increasingly taking these factors into account, although it’s unknown how these will factor into buying a home at this point.

Marital status and demographic information

Demographic information such as race, religion, education, and marital status is not included in your credit report. While being married doesn’t affect or combine your credit scores, joint credit cards or loans can still affect both spouses.

While credit reports are meant to capture your history of borrowing and repayment, these patterns can often feel personal.

“Credit can be a touchy subject for a lot of people,” Lazo said. “Sometimes, there are things outside of your control that cause it to go lower.”

The good news? Your score isn’t set in stone. Simple moves—like making payments on time and keeping your balances low—can improve your score over time.

Alex Lazo NMLS #1732223