Effective immediately, many lenders will be pulling new credit reports within three days of a proposed closing. This is to help assure the lenders that the borrowers have not taken out additional mortgage loans or have other new negative items that could affect their ability to repay the mortgage loan.
If you intend to refinance or purchase a new home within the next several months, you should become familiar with the information below.
1. Don’t Raise Any Red Flags With The Credit Bureaus. Examples include opening new accounts, cosigning for loans, or even changing demographic information such as name or address.
2. Don’t Apply For New Credit. Because inquiries can lower your score, simply applying for new credit, even from a “pre-approved offer” can lower your score.
3. Don’t Pay Off Collections or Charge-offs. Unless you can get the creditor to delete the negative mark, paying these off could hurt your score. The older they are, the less they affect your score now, so paying off an older account can really hurt. If they need to be paid, we may be able to pay them at closing.
4. Don’t Overcharge on Your Credit Card Accounts. This can not only hurt your scores, but adding additional debt could adversely affect your debt-to-income ratio and hurt your chances of closing the transaction.
5. Don’t “Consolidate and Close”. While it may seem like a good idea, consolidating credit card debt onto one or two cards and closing the others can be a very bad idea. Not only will you increase the “balance to limit” of each individual card, by closing accounts, you will lower your overall limits causing your credit scores to drop.
6. Don’t Close Accounts. By closing accounts that you have had for a while, you will also adversely affect the average length of time that your accounts have been open. This can decrease your credit score.
7. Don’t Pay Late! Just one 30-day late can affect a 780 score by 90 to 110 points according to FICO. If your score is 680, it can decrease it by 60 to 80 points; enough to disqualify you for the mortgage you applied for.
8. Don’t Allow Accounts To Become Past Due. While most creditors offer a grace period, it is possible that they could show an overdue balance on your credit report, even without being a full 30 days late. This past due balance could affect your scores by as much as 50 points.
9. Don’t Dispute Items on Your Credit Report once we have started the loan process. When you dispute an item on your credit report, it often show a “disputed by consumer” note in the comments section. Since the software that calculates the scores does not consider items in dispute, the underwriter may not consider the file until the dispute is resolved since the “true” score is not shown.
10. Don’t Forget To Stay In Contact With Your Lender and Real Estate Agent. If you have a question about how an action you are about to take will affect your credit report or scores, contact your lender immediately. It is best to check to see if it is a prudent move and not something that could jeopardize your credit rating and ultimately your loan.
11. Don’t quit your job!
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