Episode 38: Reading the Borrower Credit Report

Most note investors know they need to check the property — but for a second lien holder, the borrower's credit report tells you more about your risk than almost anything else. In this episode, we break down how to read a credit report and what it reveals about your deal before you ever speak to a borrower.

🔍 What you'll learn:

✅ How the current address on a credit report gives you a first read on whether the borrower is living in the property

✅ What the senior lien trade line shows you — and why the reported date determines whether any of it matters

✅ How to read a payment string and what the difference between rolling and delinquent means for your resolution outlook

✅ What a FICO score, employment details, and other trade lines tell you about a borrower's ability and willingness to pay

✅ Why a tri-merge credit report pulling from all three bureaus gives you the most complete and reliable picture

This program is for informational purposes only and should be independently verified before taking action.

Transcript

SPEAKER_00 0:00

Welcome to the show, where you'll learn how to invest in mortgage notes, the savvy real estate investor's secret weapon to create cash flow without tenants and property acquisitions for pennies on the dollar. My name is Robert Peta, the founder of Fix Notes, and my mission is to make note investing ethical, profitable, and accessible for you. In every episode, we're democratizing the industry to put these powerful Wall Street assets into the hands of mainstream investors like you. So without further ado, let's get into the show where you're in good hands with my AI clone. Let's go. This program is for informational purposes only and should be independently verified before taking action. For second position, lean investor. The borrower's credit report is the single most important piece of due diligence you will run. It tells you what is happening with the first mortgage in front of you, where the borrower is living, what their financial behavior looks like, and whether they are likely to work with you toward a resolution. Learning how to read one efficiently is a skill that will pay off on every deal you ever evaluate. The first thing to look for when you open a credit report is the current address on file. Compare it to the property address on your data tape. If they match, that is a strong signal that the borrower is living in the home. If the current address is different, it does not automatically mean the property is vacant. Borrowers move mail to a new address for all kinds of reasons, but it is a flag that warrants further investigation. Occupancy is a major driver of how a loan resolves, and the credit report is your first window into it. Next, find the trade line for the senior mortgage. This is the first position loan sitting in front of your second lien, and its status will tell you a lot about where things stand. The trade line will show you the original loan amount, the current balance, the monthly payment amount, any past due balance, and the reported date. That reported date matters because it tells you how fresh the information is. If the trade line was last reported eight months ago, the situation could have changed significantly in either direction since then. You want to be looking at a report that has been updated within the last 60 days, if at all possible. The payment string is where you really understand the story. It is a sequence of numbers, usually 12 of them, reading from right to left, where each number represents one month of payment history. A one means the borrower was current that month. A two means 30 days late. A three means 60 days late. A four means 90 days late. A five means 120 or more days past due. To FUC, a string of all fives, foreclosure has very likely been initiated. If you see a remark that says foreclosure collateral sold, the property may have already changed hands and your lien is potentially unsecured. Something you need to verify immediately through public records. There is a status between fully current and fully delinquent that is worth understanding. A borrower who is consistently making a payment that is 30 or 60 days late is called rolling. They are behind, but they are paying. Rolling 30 or rolling 60 is a very different situation from a borrower who has simply stopped paying. A rolling borrower is still engaged with the loan and still motivated to protect the property. That changes your resolution outlook meaningfully. Beyond the senior lien, you can pull useful information from other parts of the credit report. The FICO score gives you a snapshot of the borrower's overall credit health and capacity to make a modified payment. Employment details, where available, tell you whether there is income coming in and from what source. Public records will surface any bankruptcy filings, which is critical to know before you start a resolution conversation. And if you look at the borrower's other trade lines, their car loans, credit cards, personal debts, you start to get a picture of what they are prioritizing and what kind of financial position they are managing from. One practical note on Tri-Merge Reports, a credit report that pulls from all three major bureaus, Xperian, Equifax, and TransUnion, gives you the most complete picture. Sometimes a trade line will only be reporting to one bureau, and if you are only pulling from one source, you may miss it entirely. For thorough due diligence on individual loans, a tri-merge report is worth the extra cost. Next time, we are going to talk about property value, the different ways to estimate it, when each method is appropriate, and how accuracy requirements change depending on where you are in the equity stack. Thanks for sticking around to the end, and thank you to my trusty Robot and the Fixed Notes team for putting together another episode. If you want to learn more and hang out with the real not AI version of me, join our free school community at school.com slash fixed notes. That's s k-o-l.com slash f I X N O T E S. In the meantime, we'll see you in the next episode.