Top 10 Credit Dos and Don’ts
Good credit is critical when it comes to obtaining the best interest rates and terms on a mortgage. Here are the top 10 dos and don’ts when looking to secure a mortgage:
1. DON’T Do Anything…
… That will cause a red flag to be raised by the scoring systems. This includes adding new accounts, transferring funds from one credit card to another, rapidly increasing use of credit cards (i.e., charging large purchases or making large cash advances), co-signing on a loan, or changing your name or address with the bureaus.
2. DON’T Apply for Credit
Every time that you have your credit pulled by a potential creditor or lender, you can lose points from your credit score immediately. For instance, try not to finance a car purchase because both (a) the process of looking at your credit and (b) taking on additional debt will reduce your credit score.
3. DON’T Close Credit Card Accounts
If you close a credit card account, it may appear that your debt ratio (total credit available compared to how much existing debt) has gone up. Closing a card will affect other factors in the score, including credit history.
4. DON’T Max Out Credit Cards
Try to keep your credit card balances below 30 percent of their limit during the loan process. If you pay down balances, do it across the board.
5. DON’T Consolidate Your Debt
When you consolidate your debt onto one or two cards, it appears that you are “maxed out” on that card and you will be penalized.
6. DON’T Pay Off Collections
If you want to pay off old accounts, do it through escrow, making sure that the debt is yours. Request a “letter of deletion” from the creditor.
7. DO Join a Credit Watch Program
At least check your own credit reports regularly (you won’t get dinged for a “hard” inquiry). Plus, if something unexpected does show up, you can address it promptly.
8. DO Stay Current On Existing Accounts
Make all of your payments (i.e., mortgage, student loan, car payments, etc.) on time. Just ONE 30- day late notice will reduce your score and can cost you.
9. DO Continue To Use Your Credit As Normal
Red flags are raised easily with the scoring system. If it appears that you are changing your pattern, it will raise a red flag and your score could go down. Avoid big or unusual purchases such as buying a new car.
10. DO Call Your Loan Officer
Your loan officer may be able to supply you with the resources you need to stop any derogatory reporting to the bureaus. Ask for details.
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