During your credit process, you should not do anything that will have an adverse affect on your loan application.
By: Hitesh Khan/
When you fill out a credit application, most lenders will run a credit report for the underwriter. Each lender and each loan program has different guidelines they must follow. During your credit process, you should not do anything that will have an adverse affect on your credit score.
It may be tempting, for example, if you are moving into a new home you may be thinking about purchasing new appliances of furniture, but this is really not the time to go shopping with your credit cards. You will want to remain in a stable position until the credit process ends and the loan closes. This will help your lender to help you lock in the best deal they can possibly get for you.
Here is a handy list of do’s and don’ts that you should adhere to during your credit process, after your loan application has been submitted to the lender.
Don’t apply for new credit of any kind – if you receive invitations to apply for new lines of credit, do not respond. If you do, that company will pull your credit report and this will have an adverse effect on your credit score. Likewise, do not establish new lines of credit for furniture, appliances, computers, etc.
Don’t pay off collections or charge-offs – the credit process starts once your loan application has been submitted. So, do not pay off collections unless the lender specifically asks you to in order to secure the loan. Generally, paying off old collections causes a drop in your credit score. The lender is generally looking at the last two years of activity.
Don’t close credit card accounts – If you close a credit card account, it can affect your ratio of debt to available credit which has an impact on your credit score. If you really want to close an account, do it after you close on your loan, after the credit process.
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 credit process, try to keep your credit cards low to the ratio of the available credit limit.
Don’t consolidate debt to one or two cards – once again, you do not want to change your ratio of debt to available credit. Likewise, you want to keep beneficial credit history on the books.
Don’t raise red flags to the underwriter – do not co-sign, or act as a guarantor on another person’s loan or change your name and address. The less activity that occurs while your loan is in process, the better it is for you.
Do join a credit monitor programme – A Credit Monitor Programme is an important step in your endeavor to fight against identity theft by detecting any suspicious activities or changes that can affect your credit reputation. It acts as your third eye to monitor your credit report, looks out for predetermined activities and notifies through your email as soon as the lender uploads your information into your credit file thus providing the earliest possible indicator.
- Preventing Identity Theft – Keeps you informed whenever a perpetrator assumes your identity to apply for credit or skips a payment.
- Put Your Mind at Ease – Safeguard your personal finance and credit information without having to leave home.
- Manage Your Credit Reputation – Ensures the correctness of information uploaded onto your credit file.
Do stay current on existing accounts – Late payments on your existing mortgage, car payment, or anything else that can be reported to a credit reporting agency can cost your dearly.
Do continue to use your credit as your normally would – Red flags are easily raised within the scoring system. If it appears you are diverting from your normal spending patterns, it could cause your score to go down. For example, if you’ve had a monthly service for Internet access billed to the same credit card for the past three years, there’s really no reason to drop it now. Again, make your changes after the loan funds.
Do call your loan consultant – If you receive notification from a collection agency or creditor that could potentially have an adverse affect on your credit score, call the lender so they can try to direct you to the right resources and prevent any derogatory reporting to credit bureau.
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