Please let me apologize in advance for my potential overuse of capital letters in this post. That said--I do want the following 10 titles to read like I am screaming at you. IT'S THAT IMPORTANT!! I WANT TO SAVE YOU FROM YOURSELF!!! :)
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 on 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 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.
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 credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, do it through escrow – at closing.
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 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. Meaning, pay balances to bring your balance to limit ratio to the same level on each card (i.e. all to 30% of the limit, or all to 40% etc.)
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 in 4. If you want to save money on 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 that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit 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, however, what they don’t tell you is that 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 once the loan process has started. When yousend a letter of dispute to the credit reporting agencies, a note is put onto your credit report, and when the underwriter notices items in dispute, in many instances, they will not process the loan until the note is removedand new credit scores are pulled. Why? Because in some instances credit scoring software will not consider items in dispute in the 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 you believe may affect your credit reportsor 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.
3 comments:
Fantastic advice lady! Quick question... Let's say for example (completely hypothetical of course!) that your debt ratio is too high. How long after bringing your debt down to the ideal 30% does it take for your credit score to go up? Otherwise your credit is perfect. You've been paying on time, haven't been opening more credit accounts, etc.
I know it takes one bad move to bring your credit down FAST, but how long does it take to bring it back up?
Taunya--
This is the million dollar question and unfortunately there's not a definitive answer --because all creditors vary when it comes to how promptly they update the status of your standing with them. I can speak to this from my own personal experience and that of some of my clients. I have seen folks raise their scores markedly in a matter of months. In order to qualify for the purchase of my current home, it took me 8 months to get my credit in shape. I made some pretty crap decisions in my younger days (shocking, I know) that had to be sorted out.
If you really want to dig into this further I can put you in touch with a lender that could let you know where you stand presently and what to do to prepare for the future---she's rad and totally no pressure.
I hope this is helpful!
One more thing Taunya---in speaking to my favorite lender about this questions this is what she had to say---
You can be rescored once your payment is posted OR wait about 30 days to pull after u pay down debt...u want the balance to be less than 50% of your high limit... Your debt to income ratio can be as high as 55% on FHA...
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