When you fill out a credit application, your mortgage broker will run a credit report for the underwriter. Each lender and each loan program has different guidelines they must follow. You should not do anything that will have an adverse affect on your credit score while your loan is in process. I know it’s tempting… If you’re moving into a new home, you might be thinking about purchasing new appliances or furniture, but this is really not the right time to go shopping with your credit cards. We sometimes see clients buy a new car in the middle of qualifying for a mortgage loan. This can cause problems. You’ll want to remain in a stable position until the loan closes and give your lender the opportunity to help you lock in the best interest rate possible. Before you make any purchases with credit, please speak with your mortgage broker so that you will know what impact your decisions could have.
Here is a handy list of do’s and don’ts that you should adhere to after your loan application has been submitted.
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 cars, 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 do so in order to secure the loan. Generally, paying off old collections can cause a drop in the credit score. I know this seems counterintuitive.
DON’T CLOSE CREDIT CARD ACCOUNTS- If you close a credit card account, it can affect your ratio of debt to available credit (so called “DTI”) that has a 30% 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 cards below 30% of the available credit.
DO STAY CURRENT ON EXISTING ACCOUNTS- Late payments on your existing mortgage, car payment or anything else that can be reported to the credit bureaus can cost you as much as 75-100 points.
DO STAY IN CONTACT WITH YOUR MORTGAGE BROKER OR LENDER- Make sure to stay in contact with your mortgage broker and alert them to any new information your may receive, good or bad, regarding your credit to make sure everything goes as smooth as possible.
Recall that buying a home is a team effort. Sorry for the sport analogy; however, think of your mortgage broker as your quarterback and closing as your touchdown. In order to win the game, your quarterback must know what you’re doing in order to coordinate the rest of the field.
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