10 Do’s and Don’t on Credit
Redwood City, CA: As someone who wants to buy a home in Redwood City please follow these 10 Do’s and Don’ts on credit when you are planning on obtaining a real estate loan in the next 6 months. If you fail to follow this advice you will more than likely have to jump through unnecessary hoops and hurdles before you hear those magic words…”Your loan is Approved”. In fact, this information is so powerful if you don’t these tips you may never hear those magic words. You will be left out in the cold.
DON’T APPLY FOR ANY NEW CREDIT
This includes those “You have been pre-approved” credit card invitations that you receive in the mail. Every time 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 2-50 points for one hard inquiry.
DON’T PAY OFF COLLECTIONS WHILE THE LOAN IS IN PROCESS
Paying collections will decrease your credit score immediately due to the “date of last activity” becoming recent. If you want to pay off old accounts, do it through escrow, and make sure that 1) you confirm that the debt is yours, and 2) the creditor agrees to give you a letter of deletion.
DON’T CLOSE OUT YOUR CREDIT CARDS
An important don’t for the 10 Do’s and Don’t on Credit is don’t close out your credit cards. If you close a credit card account, it will seem to 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, and make sure that it is a more recent account.
DON’T USE YOUR CREDIT CARDS A COMPILE MORE DEBT
This is the guaranteed fastest ways to bring about an immediate drop of 50-100 points in your credit score. 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, make an extra payment on all of your cards at the same time.
DON’T CONSOLIDATE YOUR DEBT ON ONE OR TWO CREDIT CARDS
It seems like it would be the smart thing to do; however, when you combine all of your debt to one card, it seems that you maxed out on your credit cards, and the system will penalize you as mentioned above. If you want to save money on credit card interest rates, wait until after closing.
DON’T CAUSE A RED FLAG TO BE RAISED BY THE FICO SYSTEM
This would include adding new accounts, co-signing on a loan, or changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.
DO JOIN A CREDIT WATCH PROGRAM
If you join a credit watch program, you can check your reports weekly, or even daily depending upon the program you select. (When you pull your own reports, you don’t get dinged for a hard inquiry.) This way, if something does show up on your reports that caused your score to go down, you’ll know it immediately, and you may be able to take care of the problem before closing.
DO STAY CURRENT ON ALL YOUR ACCOUNTS
This includes your mortgage and car payments. One 30-day late can cost you anywhere from 30-75 points. This is so important it goes without saying this in a must for one of the 10 Do’s and Don’t on Credit.
DO CONTINUE TO USE YOUR CREDIT AS NORMAL
Red Flags are easily raised within the scoring system. If it seems that you are changing your pattern, it will raise a red flag, and your score could go down. Keep going down the “steady Eddie” path you have established.
DO STAY IN CONTACT WITH YOUR MORTGAGE CONSULTANT
If you receive something in the mail from a creditor or collection agency that you believe may affect your score during the loan process. Your mortgage consultant may be able to supply you with the resources you need to stop any derogatory reporting to the bureaus. You want to remember these 10 Do’s and Don’t of Credit when you buy your home.
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