Top 10 Credit Don'ts
THINGS NOT TO DO DURING THE LOAN PROCESS
1. Don’t Do Anything That Will Cause A Red Flag To Be Raised By The Scoring System. This may include adding new accounts, co-signing on a loan, changing your name or address with the bureaus. Generally, the less new 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 you could lose points from your credit score. Depending on the elements in your current credit report, you could lose anywhere from one to twenty points for one hard inquiry. For lender inquiries as of Jan. 2007, any indicial inquiries count as one incident through a duration of 45 days.
3. Don’t Pay Off Collections or Charge Offs During The Loan Process. Unless you can negotiate a delete letter, paying collections will usually decrease your credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, consider doing it through escrow at closing.
4. Don’t Max Out Or Over Charge Your Credit Card Accounts. This is typically the fastest way to bring credit scores down 50-100 points. Try keeping your credit card balances below 30% of their available limit at all times during the loan process. If you decide to pay down balances, consider doing it across the board - meaning, pay balances to bring your balance to limit ratio to the same level on each card (i.e. all 30% of the limit, or all 40% etc.)
5. Don’t Consolidate Your Debt Into One Or Two Credit Cards. It seems like this would be the smart thing to do; however, when you consolidate all of your debt into one credit card, it may appear that you are maxed out on that card and the system will penalize you as mentioned in above item #4. If you want to save money on credit card interest rates, consider waiting until after closing.
6. Don’t Close Credit Card Accounts. If you close a credit card account, you may lose available credit and it might appear to the FICO that your debt ratio has gone up. Also, closing a card may affect other factors in the score such as length of credit history. If you have to close a credit card account, think about doing it after closing.
7. Don’t Pay Late. Stay current on existing accounts. Under the new FICO scoring models, one 30-day late could cost you anywhere from 50-100 points. Points lost for late pays may 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 may not tell you is that once the due date passes, that account could show up past due 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 Is Started. When you send a letter of dispute to the credit report agencies a note is added to your credit report. In many cases when an underwriter notices a dispute they may not process the loan until the dispute is removed.
10. Don’t Lose Contact With Your Mortgage And Real Estate Professionals. If you have a question or not if 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 score or affect your loan.