Yeah!  You found a house you want to purchase and your credit scores met the mortgage company’s requirements.  When you are in the home buying process and have started the paperwork with your lender, you need to at least keep your credit rating where it was when you qualified for the loan.  These recommendations, compiled from lenders, can help to keep your scores from dropping.  Remember, until you sign the final papers and get the keys, it is NOT a done deal.

DO NOT APPLY FOR OR OPEN ANY NEW ACCOUNTS

This includes all of the following:

Automobiles                    Boats

Trucks                                Motorcycles

Furniture                          Outdoor Furniture

Gasoline Cards                Department Store Accounts

Jewelry Accounts         Mail Order Catalog Accounts

RVs                                      Three Wheelers and Quads

Appliances                       Patio Fixtures and Equipment

Electronics                       BBQ Grill

Gym Memberships       Lines of Credit

Very often, people who have worked hard to build their credit get so excited when they find out they qualify for a home loan that they take that excitement out shopping with them.  They find new furniture for the new house, new televisions and computers, new cars to park in the new garage, maybe a new watch or diamond earrings to celebrate.  If those items are purchased on credit or with a loan, the credit scores change and the new debt might take the consumer over the lender’s debt-to-income ratio (DTI).

Each time you apply for credit, it is a Hard Inquiry on your credit report that stays on for two years and can count against your score.  Additionally, 10% of your FICO score is based on the category of “New Accounts” and there can be a 2-3 month temporary drop in scores when new accounts are opened.

DO NOT CLOSE EXISTING ACCOUNTS
Many people assume that the best way to get better credit scores is to pay down their existing debt and then close all of their revolving accounts such as credit cards, store accounts and gasoline cards.  Yes, paying down the balances on these cards is a great way to help your scores.  However, closing these accounts that are in good standing can actually hurt three major parts of your FICO scores and will usually cause a drop in scores.

NOTE: closing accounts that have late payments or other negative marks on them does NOT make the negative items go away.

KEEP ACCOUNT BALANCES LESS THAN 25% OF THE CREDIT LIMIT
The second largest part of the FICO score is “Amounts Owed”; this is the Utilization Ratio or debt-to-available-credit amount.  When balances on revolving accounts are over 50% of the credit limit on the account, there is generally a negative impact on credit scores.   

Keep account balances under 25% of the credit limit for optimal credit score growth.  It is okay to have a zero balance.  Remember, don’t close the accounts when they are paid off.

PAY ALL BILLS ON TIME
The number one factor in the FICO scoring formula is “Payment History”.  The best way to help your credit rating is to pay all bills on time, every time.  This includes timely payments to companies that do not usually report your account information to the credit bureaus such as the phone company or electric company.   When you have a delinquent utility bill that goes to collections, that collection account often shows up on credit reports and is a big negative.

Additionally, many lending programs require a minimum or 12 or 24 months with no late payments on anything as a qualification for a home loan.  So set up a system that keeps you on top of your bills and their due dates.

For your personal Credit Check-Up that includes an analysis of your current accounts and details on how you can optimize your credit building efforts, contact us today.  The $100 you invest in good credit can save you thousands in future interest payments with a better qualifying rate.

ATTENTION LENDERS:  We know the lending industry is changing weekly if not daily.  Please share your comments of  additional or new requirements that consumers should be aware of.  Thank you.