Countdown to success: Managing your credit during the lending process
Your credit history and credit score go a long way toward determining the loan amount you’re eligible for, the cash down payment you’ll need, and the interest rate you’ll pay. Knowing what to do — and what not to do — before and during the application process can help you avoid bumps in the road.
- Avoid opening or applying for credit cards. Lenders look at credit inquiries, which show that other lenders have asked for your credit record and may indicate you are about to take on new debt that has yet to be reported—potentially making it harder to pay your bills, including a mortgage – on time.
- Keep your credit cards open. Your FICO score is based heavily on the amount you owe compared to how much credit you have access to. Closing a card lowers your overall available credit and may increase your percentage of credit in use—which could hurt your credit score.
- Check your credit report and question any inaccuracies. Misinformation can impact your credit score, which may result in a declined loan application. If you find an error, alert the credit bureau and provide proof of the error to get the mistake removed from your report. (Visit annualcreditreport.com to request a free report.)
2 months before completing a mortgage application:
Pay down any credit card balances. Lowering your balances is one way to improve your score. Doing so a few months before applying for a loan is important because changes in credit card balances may not always appear on your credit report right away.
After your mortgage is approved:
Keep your credit use consistent. Many lenders order a second credit report a few days before closing. Don’t open new accounts or charge up your credit cards while you wait for closing day. Any recent activity could result in your mortgage loan being rejected at the last minute.
Top Tip: Protect your credit rating when loan shopping
Credit bureaus permit you to shop for rates, but to help make sure this activity doesn’t harm your FICO score, Experian suggests limiting your loan shopping to a 14-day time frame. During this period, you can have your credit checked by an unlimited number of lenders without negatively impacting your credit score.