From our friends at National Credit Care
Underwriting. Now that’s a word that makes any mortgage professional get the chills. Let’s say it again…underwriting…brrrr…those blasted pencil pushers just making all our lives more miserable. Over 90% of our clients are seeking a loan approval for a home. This has naturally turned our business model into a niche specialty. So, whether it’s underwriting issues or last-minute bad credit ideas, today’s credit tip will focus on the largest mistakes clients and their mortgage professionals make when trying to get their credit ready for closing.
Paying off/settling collections – This is generally a bad idea, as it will cause your score to drop as your activity date gets renewed. However, let’s say underwriting is forcing you to take care of it for the loan. Then all you need to do is simply pay it off right before closing and bring the paid-off document. This way the payoff doesn’t have time to negatively impact your score.
Closing down revolving accounts – Who does this? You need at least one revolving account to meet the minimum criteria of the scoring algorithms used by all three credit bureaus.
Paying off your auto and student loans – Not a good plan. When you pay your installment accounts they close naturally, and then you lose your length of credit history. A better approach is to simply pay the minimum amount for as long as possible.
Acquiring positive credit – Okay, so your credit report looks kind of blank! Don’t go nuts and apply for too much. That won’t help and you will receive too many inquiries. Less is more. Apply for one secured credit card and use it sparingly each month. If those pesky underwriters want you to have three minimum open trade lines…well, that is really annoying. Next, try inheriting a couple of positive credit accounts from a close relative. Regardless, get your own as well; you’ll be grateful in the end.
Disputes – This is a standalone credit tip all by itself. Long story short, we have a dispute resolution team that only specializes in dispute removal; so check with us before submittal so we can avoid these nightmares.
Student loan collections – Unfortunately, most student loans are government-backed so they don’t just disappear after a certain time. And no one hands out mortgage loans with student loans collections running rampant. Therefore, get on a new payment plan (no need to pay them off in full, that’s unrealistic), and make sure that part of the payment plan is a requirement that the loans will be put back into good standing several months later (You won’t have to wait this long for the loan, it’s more of an end-game strategy).