Credit Do’s and Don’ts

It’s important to know where you stand in terms of your credit score as it is an important factor in determining your loan eligibility.  For a free credit report, you can visit www.annualcreditreport.com.  The free versions of the report will not give you your credit scores.  For that, you should come to our office for a consultation on your eligibility which will include a credit report analysis.

CREDIT DOs AND DON’Ts BEFORE LOAN PROCESS (6 months prior or more)

Credit is like a muscle.  If you don’t use it, it whittles away.  You must exercise your credit in order for the lenders to know you have the capability of using credit in a responsible manner.  Many wonder what is the best way to improve a credit score.  If you follow these suggestions, we are sure your credit score will improve:

• Never pay late (pretty obvious)
• Have three open accounts and use them.  You don’t have to have a huge amount of debt to improve your score.
• Do not allow your closing statement balance to exceed 40% of your available credit.  If your credit line is 1000, your monthly statement should not show more than a $400 balance
• Pay down credit cards.  This will give you more borrowing capacity for your home.
• Don’t close old accounts.  These accounts give a long history of your credit habits  If you close them, the benefits of this long history go away.
• If you cosigned for someone else, make sure they are making the payment in a manner that is documentable and that the money is coming from their account.  If you can prove this for at least one year, the payment will not affect your borrowing capacity.

CREDIT DOs AND DON’Ts DURING LOAN PROCESS

The basic rule here is to not do anything that involves credit without first discussing it with your mortgage professional.  Even the most innocent of actions may cause a huge problem.

• Do Stay Current On Existing Accounts One 30-day notice can cost you.
• Do Continue To Use Your Credit As Normal Changing your pattern will raise a red flag and lower your credit score.
• Do Call Your Mortgage Professional before making any address or credit changes
• Don’t Apply For New Credit Every time you have your credit pulled by a potential creditor or lender, you can lose points from your credit score. This includes co-signing for a loan.
• Don’t Max Out Credit Cards Try to keep your balances 30% below their limit during the loan process. If you pay down balances, do it across the board.
• Don’t Close Credit Card Accounts If you close a credit card account, it may appear that your debt ratio has gone up. Closing a card will affect other factors in the score, including credit history.
• Don’t Pay Off Collections Or ‘Charge-Offs’ If you want to pay off old accounts, do it through escrow. Request a ‘letter of deletion’ from the creditor.
• Don’t Consolidate Your Debt When you consolidate all of your debt onto one or two credit cards, it will appear that you are ‘maxed out’ on that card and you will be penalized.