Top 10 Credit Don’ts During The Loan Process

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1. DON’T DO ANYTHING THAT WILL CAUSE A RED FLAG TO BE RAISED BY THE SCORING SYSTEM. This would include adding new accounts, co-signing a Loan, 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 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 credit report, you could lose anywhere from 1 – 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 collections will decrease the score immediately due to the date of last activity becoming recent.

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. Try to keep your credit card balances below 30% of their available limit at ALL times during the loan process.

5. DON’T CONSOLIDATE YOUR 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. If you want to save money on the 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 system that your debt ratio has gone up. Also, closing a credit card will affect other factors in the score such as length 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, what they don’t tell is the once the due date passes, that account will 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! When you send a letter of dispute to the credit reporting agencies, a note is added to your credit report. When the underwriter notices items in dispute, they will not process the loan until the note is removed and new credit scores are pulled. The word “dispute” CANNOT appear anywhere in the report. Credit scoring software 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 your believe may affect your credit report 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 scores or possibly, cause you to lose the loan.

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