You’re going to buy a home and you’ve gone to one of the many resources to pull a copy of your personal credit report, but is it the same as the credit report your lender will see? As far as the content, it probably is; as far as your credit scores, probably not. The scores you see on a personal credit report are just that – personal scores. The scores your lender will have will be different and most likely lower. The question remains, when is it ok for your lender to pull your credit report and do they need permission to do so?
When a consumer is considering getting a mortgage, the lender will normally pull a credit report prior to the actual application process for the purpose of getting them “pre-qualified.” Before a consumer actually writes a contract for a house the mortgage company wants to know ahead of time if the consumer will be able to qualify for a mortgage.
Due to regulatory laws this is the only reason a lender may pull a consumer’s credit report. They must have “permissible purpose,” to pull credit, which, in this case, is to qualify for a mortgage. A lender cannot pull credit reports on themselves, friends, family members, employees, etc., unless that person is actually trying to qualify for a mortgage.
The lender must also have the borrowers’ permission to pull a credit report. Normally this is done with written permission. There is a standard borrower authorization form that the borrower can sign that gives a lender permission to pull their credit. This permission must be dated either the same day or prior to the credit being pulled. Written permission is also the safest way to give permission for credit to be pulled as it creates written proof.
Permission can be given verbally but the lender must document thoroughly that verbal permission was given prior to pulling the credit report. At one time, lenders would just jot down a note on a piece of paper that a verbal was given and put it in the file. While this could suffice it’s really not the best practice and is really not in keeping with industry standards. Trans Union and Equifax will accept a verbal authorization that is documented. Most lenders now have “certifications of verbal authorization” that are filled out by the loan officer that pulled the credit and include very detailed information regarding when and why the verbal was given as opposed to written authorization. Experian will only accept a verbal authorization if it has been captured by an audio recording.
After the credit report is pulled the lender may then provide a copy of that report to the consumer. Mortgage reports can contain additional information and disclosures that consumer-direct disclosures of credit reports do not contain. The report should be hand delivered to the borrower as this is the most secure method. There’s too much risk involved in emailing a consumer a copy of their credit report which could open the loan officer up to unwanted liabilities.
The fee for the credit report can also be paid for by the borrower and is the only fee that can be collected prior to receiving a receipt of a loan estimate. Also, it should be paid for using a credit or debit card and not by cash or check.
While a lender must follow due diligence when going through the process of approving a borrower for a loan it is equally important for the borrower to follow their own due diligence to ensure that the lender is following proper procedure and that mistakes are not being made. In the long run this will protect both the borrower and the lender.