No, No, No. Please Do Not Do These Things While You Are In Escrow

As part of Fannie Mae's Loan Quality Initiative (LQI), lenders are required to monitor a borrower's credit throughout the loan process.  This can include a "soft" credit pull immediately prior to funding to look for new accounts and inquiries.

Here are ten things that a homebuyer should avoid while in escrow:

•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 credit reporting agencies.  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.  A new inquiry can potentially lower your credit score. 

•3.     Don't pay off collections or charge offs.  Unless you can negotiate a delete letter, paying collections will decrease the credit score immediately due to the date of last activity becoming recent.  However, in some cases, collections or charge offs must be satisfied as a condition of loan approval, but your lender will most likely only need to update that particular account with a credit supplement vs. a new credit report. 

•4.     Don't max out or over charge on your credit card accounts.  This is the fastest way to bring your scores down.  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 load has increased.  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 accounts to run past-due - Even one 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. When you send a letter of dispute to the credit reporting agencies, a note is put onto your credit report, and when your lender notices items in dispute they will not process the loan until the note is removed and new credit scores are pulled.  Why?  Because credit scoring software will not consider items in dispute in the credit score -giving false date to the lender.  Disputed accounts are a no-no.

•10.  Don't lose contact with your mortgage and real estate professionals!  Don't do anything without the ok of both professionals in the transaction, until you have your keys.

These might seem obvious, but better safe than sorry.

 Kevin Kueneke, NMLS # 284800
San Diego County Mortgage Specialist
FHA Mortgage Loan Specialist/VA Mortgage Loan Specialist
Direct Lender, Mortgage Banker
Phone 760-500-1919 | Fax 619-419-2324

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