Top 10 Dos and Don’ts During the Loan Process
What Not To Do:
Don't Apply for New Credit of Any Kind
If you receive invitations to apply for new lines of credit, don’t respond. If you do, that company will pull your credit report and this will have an adverse effect on your credit score. Likewise, don’t establish new lines of credit for furniture, appliances, computers, etc.
Don't Pay Off Collections or Charge-Offs
Once your loan application has been submitted, don’t pay off collections unless the lender specifically asks you to in order to secure the loan and we recommend that you do everything possible to negotiate deletion in exchange for payment. Generally, paying off old collections causes a drop in the credit score. The lender is only looking at the last two years of activity.
Don't Close Credit Card Accounts
If you close a credit card account, it can affect your ratio of debt to available credit which has a 30% impact on your credit score, and also your length of credit history which has a 15% impact on your credit score. If you really want to close an account, do it after you close your mortgage loan.
Don't Max Out or Over Charge Existing Credit Cards
Running up your credit cards is the fastest way to bring your score down, and it could drop up to 100 points overnight. Once you are engaged in the loan process, try to keep your credit card balances below 30% of the available credit limit.
Don't Consolidate Debt to One or Two Cards
Once again, we don’t want you to change your ratio of debt to available credit. Likewise, you want to keep beneficial credit history on the books.
Don't Raise Red Flags to the Underwiter
Don’t co-sign on another person’s loan, or change your name and address. The less activity that occurs while your loan is in process, the better it is for you.
Joining a Credit Watch Program
Your bank, credit union, or credit card company may be able to provide you with a free credit watch program that can alert you to any changes in your credit report. This can be a safeguard to help you intervene before the underwriter sees a problem.
Staying Current on Existing Accounts
Late payments on your existing mortgage, car payment, or anything else that can be reported to a CRA can cost you dearly. One 30-day late payment can cost anywhere from 50 to 80+ points on your credit score.
Continuing to Use Your Credit as You Normally Would
Red flags are easily raised within the scoring system. If it appears you are diverting from your normal spending patterns, it could cause your score to go down. For example, if you’ve had a monthly service for Internet access billed to the same credit card for the past three years, there’s really no reason to drop it now. Again, make your changes after the loan funds.
Calling Your Loan Consultant
If you receive notification from a collection agency or creditor that could potentially have an adverse effect on your credit score, call us so we can try to direct you to the right resources and prevent any derogatory reporting to credit bureaus.