{"id":4820,"date":"2016-10-16T20:24:38","date_gmt":"2016-10-16T20:24:38","guid":{"rendered":"http:\/\/teammovemortgage.com\/?p=4820"},"modified":"2020-07-13T22:33:02","modified_gmt":"2020-07-13T22:33:02","slug":"credit-mistakes-avoid-prior-closing","status":"publish","type":"post","link":"https:\/\/teammovemortgage.com\/blog\/credit-mistakes-avoid-prior-closing\/","title":{"rendered":"Credit Mistakes to Avoid Prior to Closing"},"content":{"rendered":"

Everyone hears the credit\u00a0advice flying in the mortgage process.\u00a0 Examples may include “You need to pay off all your debts!”.\u00a0 “Close your unnecessary credit cards!”.\u00a0 Too often we see clients do things like these that hurt their purchase or refinance closing.\u00a0 These costly mistakes stem\u00a0from two primary areas.\u00a0 First, borrowers just get bad advice from others who are not knowledgeable on credit.\u00a0 At a minimum, many providing the advice\u00a0have never even seen the borrower’s credit report.\u00a0 Next, borrowers have good intentions but do things that actually hurt credit scores.\u00a0 So today let’s discuss common credit mistakes that can cause closing issues.<\/p>\n

Credit Mistakes:\u00a0 Paying Off or Settling Collections<\/h2>\n

It doesn’t make sense, but paying off an old collection can actually lower credit scores.\u00a0 Although there are plenty of times that underwriters require borrowers to pay off collections.\u00a0 What do you do?\u00a0 If allowed, either pay off the collection just before or at closing.\u00a0 Then the negative impact wouldn’t happen until after closing.\u00a0 Sometimes a collection company may even agree to remove the account completely from credit if paid off.\u00a0 Foremost, remember that they are a collection company and will say anything to get paid.\u00a0 So get any agreement in writing prior to paying off an account.\u00a0 Before doing such, consult with your loan officer!<\/p>\n

Credit Mistakes:\u00a0 Closing Revolving Accounts\"credit<\/h2>\n

Revolving balances compared to credit limits account for 30% of a credit score.\u00a0\u00a0So closing revolving accounts reduces the available credit and can lower a score.\u00a0 Actually check out “What to do with those old credit cards that could help your credit scores<\/span><\/a>“.\u00a0 Opposite of closing an account, companies will ask you to raise your credit limits.\u00a0 This is ok as long as there is not a credit inquiry.\u00a0 We discuss credit line increases in detail here<\/span><\/a>.<\/p>\n

Credit Mistakes:\u00a0 Paying Off Auto or Student Loans<\/h2>\n

Now paying off debts is generally a very good thing.\u00a0 But there are several bad results that can come from this during the mortgage process.\u00a0 First, don’t pay off a debt unless your mortgage expert tells you to.\u00a0 If required by underwriting,\u00a0ask about paying it at closing.\u00a0 Sometimes loans with 10 or less payments remaining are not even counted in debt ratios.\u00a0 So why pay it off in this case?\u00a0 Additionally, paying off a debt reduces assets.\u00a0 Assets are key to a mortgage loan as it is used for down payment and\/or reserves after the closing.\u00a0 Finally, paying off an installment loan shortens your length of credit.<\/p>\n

Credit Mistakes:\u00a0 Open New Accounts or Apply for\u00a0Credit<\/h2>\n

Ok, the obvious is new debts increase a borrower’s debt to income ratio.\u00a0 Higher ratios means qualifying for less of a loan.\u00a0 But new accounts during a mortgage process means additional verification steps.\u00a0 This means more work for you.\u00a0 Also new inquiries can reduce a credit score.\u00a0 What if you have a 640 score, open a new card, and then lose just 1 point.\u00a0 The difference in a 639 and 640 score can be huge with rates or even qualifying period.<\/p>\n

Credit Mistakes:\u00a0 Increase Credit Card Balances<\/h2>\n

Again, balances on revolving accounts is the second most important factor in a credit score.\u00a0 Actually it accounts for 30% of scores!\u00a0 So if you have a credit limit of $500 and your balance goes from $20 to $450, a score can decrease dramatically.\u00a0 Especially true if you have limited open revolving accounts.\u00a0\u00a0Furthermore, we have seen\u00a0one balance increase lately that does not work with mortgages.\u00a0 It is paying the earnest money deposit on a contract with a credit card.\u00a0 A down payment source may not be a credit card advance.\u00a0\u00a0So always avoid this!\"credit<\/p>\n

In conclusion, be boring during the mortgage process!\u00a0 So don’t increase balances, transfer unnecessary funds around, apply for new credit, or anything.\u00a0 At a minimum, there is more paperwork.\u00a0 Worse case is your loan doesn’t close!\u00a0 Check out a more in depth article\u00a0on this topic, “You just killed your mortgage approval at the last hour!\u00a0 Solution, Be boring!<\/span><\/a>“.\u00a0 It is our goal in all of our articles to provide readers the education necessary to make great real estate decisions.<\/p>\n

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Everyone hears the credit\u00a0advice flying in the mortgage process.\u00a0 Examples may include “You need to pay off all your debts!”.\u00a0 “Close your unnecessary credit cards!”.\u00a0 Too often we see clients do things like these that hurt their purchase or refinance closing.\u00a0 These costly mistakes stem\u00a0from two primary areas.\u00a0 First, borrowers just get bad advice from […]<\/p>\n","protected":false},"author":2,"featured_media":4823,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5,33,40],"tags":[541,791,687,792,691],"class_list":["post-4820","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-1st-time-buyers","category-frequently-asked-questions","category-tips","tag-credit-cards","tag-credit-mistakes","tag-credit-scoring-tips","tag-paying-off-debts","tag-should-i-increase-my-credit-limits"],"acf":[],"yoast_head":"\nCredit Mistakes to Avoid Prior to a Real Estate Closing<\/title>\n<meta name=\"description\" content=\"Credit Mistakes are rampant these days because of bad advice plus credit scoring is just so confusing for the general public. 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