The Top 10 Credit Don’ts During the Loan Process

by John Snell on June 10, 2022

These “Ten Commandments” are great to follow all the time!

  1. DON’T DO ANYTHING THAT CAUSES A RED FLAG TO BE RAISED BY THE SCORING SYSTEM. This would include adding new accounts, co-signing on a loan, and changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.
  2. DON’T APPLY FOR NEW CREDIT OF ANY KIND. Including those “You have been pre-approved” credit card invitations that you receive in the mail or online. Every time that 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 current credit report, you could lose anywhere from one to 20 points for one hard inquiry.
  3. DON’T PAY OFF COLLECTIONS OR CHARGE OFFS during the loan process. Unless you can negotiate a delete letter, paying off 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 after closing.
  4. DON’T MAX OUT OR OVER CHARGE ON YOUR CREDIT CARD ACCOUNTS. This is the fastest way to bring your scores down 50-100 points immediately. Try to keep your credit card balances below 30% of their available limit at ALL times during the loan process. If you decide to pay down balances, do it across the board. In other words, pay down balances to bring your balance-to-limit ratio to the same level on each card (i.e. – all to 50%, then all to 30%, etc.).
  5. DON’T CONSOLIDATE DEBT ONTO 1 OR 2 CREDIT CARDS. It seems like it would be the smart thing to do. However, when you consolidate all of your debt onto one card, it appears that you are “maxed out” on that card, and the system will penalize you as mentioned above in #4. If you want to save money on credit card interest rates, wait until after closing.
  6. DON’T CLOSE CREDIT CARD ACCOUNTS. If you close a credit card account, you will lose “available” credit and it will appear to the FICO model that your debt ratio has gone up. Also, closing a card will affect other factors in the scoring, such as length of credit history. If you HAVE to close a credit card account, , do it after closing.
  7. DON’T PAY LATE. Stay current on existing accounts. Under the new FICO scoring model, one 30-day late can cost you anywhere from 50-100 points, and points lost for late pays take several months, if not years, to recover.
  8. DON’T ALLOW ANY ACCOUNTS TO RUN PAST DUE- EVEN 1 DAY! Most cards offer a grace period. However, what they don’t tell you is that once the due date passes, that account may show a past due amount on your credit report. Past due balances can also drop scores by 50+ points.
  9. DON’T DISPUTE ANYTHING ON YOUR CREDIT REPORT once the loan process has started. When you send a letter of dispute to the credit reporting agencies, a note is put onto your credit report. When the underwriter notices items in dispute, in many instances, they will not process the loan until the note is removed and new credit scores are pulled. Why? Because the credit scoring software typically will not consider items in dispute in the credit score – giving false data to the lender.
  10. DON’T LOSE CONTACT WITH YOUR MORTGAGE & REAL ESTATE PROFESSIONALS. If you have a question about whether or not you should take a specific action that you believe may affect your credit reports or scores during the loan process, your mortgage or real estate professional may be able to supply you with the resources you need to avoid making mistakes that could drop your credit scores or possibly cause you to lose the loan.

Please share this page with your friends, family members and business associates. It’s THAT important!

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Fannie Mae Requires New Credit Report Before Closing

by John Snell on May 30, 2022

If you’re like most soon-to-be new homeowners waiting for your house to close, you keep thinking of projects you can do and things you need to buy to make your home just right.


It could be the carpeting that doesn’t match your furniture, or maybe you don’t want your old refrigerator in your new home. You’re probably considering hitting the big-box stores so you can get your hands on all the new state-of-the-art gadgets and appliances to your new home.


You’re also probably tempted to just pull out your credit card and charge the purchase, or maybe you’re lured by a “12-months-with-no-interest” offer. You could have the installers on their way as soon as you have the keys!


As is often the case, what we want isn’t what’s best for us. Fannie Mae’s implemented new rules on June 1, 2010 that require lenders to pay more attention to changes in your credit report from the day you applied until the day you close.


Lenders must refresh your report to see if your credit balances have changed or if you have acquired a new debt. They must even check out credit inquiries to see if you are obligated to pay back any ‘new’ loans. Lenders also have access to new fraud detection tools that can determine if you are trying to work around the system or if you have undisclosed debt.


Note that lenders can put these new rules into effect at any time prior to June 1, and for most borrowers, new debt could delay closing, or the bank could even decide against approving the loan altogether.


If you are buying a home, pay cash for all the new things you want, or wait until you can really afford the new purchases. Don’t even let stores run your credit to see if you qualify. Plan a little slack in your moving schedule so you can have new carpets, appliances, etc. installed before you have to move from your old home.

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