What's on my credit report?

May 1, 2010 6:48 PM

My wife and I, proud parents of a new baby, need a new house, asap. I had, as recently as last month, significant credit card debt related to setting up my solo law practice and funding a couple of contingency fee cases. The previous debts would have messed up the debt/income ratios required for a mortgage. I've managed to zero out the debt through a settlement I've recently closed. Question is this: will the previous balances show up on the credit report viewed by the lender? (For example, March 2010 -- 30,000, April 2010, 30,000, May 2010, 0). Or will the report just show the high balance and credit limit without reference to when the balance was paid? Should I be prepared to document the basis for the quick payoff of the debt? My credit score is good, 750ish, and my wife's is better, 800+.
posted by seventyfour to Work & Money (5 answers total)

In my recent experience, yes, be prepared to document the source of the income used to pay off the debt -thoroughly-. I recently purchased a house, having paid off a few (not-insignificant) debts (including my existing mortgage) using income from a third piece of property which I had inherited several years ago, I had to provide thorough documentation of the sale of the inherited property to the mortgage company. Otherwise, it was not a problem, but it took them a while to understand exactly what was going on and stop looking askance at it.
posted by jferg at 7:03 PM on May 1, 2010

Oh, also, I believe they said that any large income in the previous 6 months would have to be thoroughly documented and explained.
posted by jferg at 7:08 PM on May 1, 2010

Best answer: In my experience, the credit report should only show the last REPORTED balance and will not show a history of the balance. However, it may take the credit card company at least a month to update the balance on your credit report (sometimes longer). This is based on my experience with the Canadian credit reporting system, but it should be the same as the US.
posted by 1000monkeys at 7:32 PM on May 1, 2010

Nthing that as long as you can prove you don't owe someone the money that you used to pay off the debt, you should be fine. What the banks are worried about is that you have debt obligations from borrowing in unofficial channels which don't show up on your credit history but will impede your ability to pay your mortgage. So if it's clear that you earned the money you used to pay down the debt and you can document that, you ought to be okay.

When we bought our house, our parents helped us with the down payment, and we had to get gift letters from our parents saying that they had given us a gift of $X and that they had no expectation that we would pay it back. I would imagine that if it's clearly documented that you are a lawyer and you can produce a cancelled check from someone that is documented to be your client for the amount in question, that would be sufficient.
posted by little light-giver at 2:16 PM on May 2, 2010

Best answer: First, congratulations on your new baby and for clearing your debt! Just bought a house, so I became familiar with some of this. Credit reports generally lag somewhat by a month or so, so probably would still show your old balances. You can But, you can easily show an online printout of your credit card statements/current balances, and documentation showing where you got the money to pay it all off. Like little light-giver said, mortgage companies only want to make sure that you didn't borrow the money somewhere else short term.

A credit score of 750 is considered "excellent", and "800" if of course even better. In either case you'll be qualified for the best available interest rates, and as long as you can show your credit card debt being clean, you should have no issues getting the best mortgage currently offered. I have a salaried job, so I don't know how income documentation would work in your case with self-employment -- that's something you might want to look at.

If you're curious about your credit report, you might want to get a three-bureau credit report that shows what each of the three credit bureaus have on record. Note that your credit score is not affected when you check your own score. The FICO score that many lenders use might not be identical to these consumer credit reports, but the scores are close enough.

P.S. I use Amex Credit Secure, and that gives me really detailed reports every month. I see that they now have 30-day promotion for $1.99, so there is no reason to not try if you have an Amex card.
posted by thewildgreen at 2:59 PM on May 2, 2010