Upcoming Credit Changes: This could affect your closing

There are some drastic changes that are occurring that could have a huge affect on your home closing if you are a borrower or if you are a real estate agent helping your client. Fannie Mae has just implemented a new Loan Quality Initiative and requires lenders to pull a soft credit pull prior to the closing. What affect will this have? If you or your client has had drastic changes in their credit this could delay or eliminate the possibility of them closing on their house. How has this changed? In the past there was simply an initial credit pull that had to occur within 60 days of closing and nothing further. This will have a fairly large impact on home closings!

With that being said it is now more important than ever for you and your mortgage professional to educate your clients about credit and how changes in their credit can affect their closing. I went ahead and put together this important list of TOP 10 CREDIT DON'TS. This will absolutely be helpful to read and educate yourself and pass along to your client.

1. DON’T DO ANYTHING THAT WILL CAUSE A RED FLAG TO BE RAISED BY THE
SCORING SYSTEM. This would include adding new accounts, co-signing on a loan,
changing your name or address with the bureaus. The less activity on your reports during
the loan process, the better.

2. DON’T APPLY FOR NEW CREDIT OF ANY KIND. Including those “You have been pre-
approved” credit card invitations that you receive in the mail or online. Every time that 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 one to 20 points for one hard inquiry.

3. DON’T PAY OFF COLLECTIONS OR CHARGE OFFS during the loan process. Unless you

can negotiate a delete letter, paying collections will decrease the credit score immediately due to the date of

last activity becoming recent. If you want to pay off old accounts, do it through escrow – at closing.

4. DON’T MAX OUT OR OVER CHARGE ON YOUR CREDIT CARD ACCOUNTS. This is the fastest way to

bring your scores down 50-100 points immediately. 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, pay balances to bring your balance to limit ratio to the same level on each card (i.e. all to

30% of the limit, or all to 40% etc.)

5. DON’T CONSOLIDATE YOUR DEBT ONTO 1 OR 2 CREDIT CARDS. It seems like it would
be the smart thing to do, however, when you consolidate all of your debt onto one card, it
appears that you are maxed out on that card, and the system will penalize you as mentioned
above in 4. If you want to save money on credit card interest rates, wait until after closing.

6. DON’T CLOSE CREDIT CARD ACCOUNTS. If you close a credit card account, you will lose
available credit, and it will appear to the 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.

7. DON’T PAY LATE. Stay current on existing accounts. Under the new FICO scoring model,
one 30-day late can cost you anywhere from 50-100 points, and points lost for late pays take
several months if not years to recover.

8. DON’T ALLOW ANY ACCOUNTS TO RUN PAST DUE --EVEN 1 DAY! Most cards offer a
grace period, however, what they don’t tell you is that once the due date passes, that account
will show a past due amount on your credit report. Past due balances can also drop scores
by 50+ points.

9. DON’T DISPUTE ANYTHING ON YOUR CREDIT REPORT once the loan process has started. When you

send a letter of dispute to the credit reporting agencies, a note is put onto your credit report, and when the

underwriter notices items in dispute, in many instances, they will not process the loan until the note is

removed and new credit scores are pulled. Why? Because in some instances, credit scoring software will not

consider items in dispute in the credit score – giving false data to the lender.

10. DON’T LOSE CONTACT WITH YOUR MORTGAGE & REAL ESTATE PROFESSIONALS. If
you have a question about whether or not you should take a specific action that you believe
may affect your credit reports or scores during the loan process, your mortgage or real estate
professional may be able to supply you with the resources you need to avoid making
mistakes that could drop your credit scores or possibly, cause you to lose the loan.