In a previous article I had written about new rules from Fannie Mae on credit reporting during the mortgage application process. Understanding credit reporting and scoring can feel like learning a new science. On top of that, it feels like you’re walking on a tight rope when you do apply for a mortgage because there are so many little caveats to know and remember.
To help simplify the process, here is a list provided by John Farwell, a local mortgage lender, about some “Do’s and Dont’s” for your credit after you’ve made application for your loan and have a property under contract:
Don’t Apply For New Credit of Any Kind. Including those “you have been pre-approved” credit card invitiations you receive in the mail. Every time you have your credit pulled by a potential creditor or lender, you lose points from your credit score immediately. Depending on the elements in your credit you could lose any where from 2-50 points for one hard inquiry.
Don’t Pay Off Collections or Charge-Offs during the loan process. Paying collections will decrease the credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, do it through escrow and make sure that 1.) you validate the debt is yours, 2.) that the creditor agrees to give you a letter of deletion.
Don’t Close Credit Card Accounts. If you close a credit card account it willl appear that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit history. If you have to close a credit card account, do it after closing, and make sure it is a more recent account.
Don’t Max Out or Over Charge on Your Credit Card Accounts. This is the fastest way to bring your score down 50-100 points immediately. Try to keep your credit balances below 30% of their available limit at all times during the loan process.
Don’t Consolidate Your Debt on to One or Two Credit Cards during the loan process. It seems like it would be the smart thing to do, however, when you consolidate all of your debt on to one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above in number 4. If you want to save money on credit card interest rates, wait until after closing.
Don’t Do Anything That Will Cause a Red Flag to be Raised By the Credit Scoring System. This would include adding new accounts, co-signing on a loan, changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.
Do Consider Joining a Credit Watch Program. If you join a credit watch program you can check your reports regularly. If something incorrect does show up on your reports, you’ll know it immediately, and you may be able to take care of the problem before closing. Keep in mind when you pull your own reports you don’t get “dinged” for a hard inquiry.
Do Stay Current on Existing Accounts like your mortgage and car payments. One 30-day late can cost you anywhere from 30-75 points.
Do Continue to Use Your Credit As Normal. If it appears you are changing your pattern, it could raise a red flag and your score could go down.
This information was provided to me by John Farwell with Group One Mortgage. He can be contacted at 772-486-1689 if you have questions about mortgages and the loan process.
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