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