What you don’t know about credit can hurt you when you’re buying a house and when you go to refinance. Use these tips to keep your credit in order before you start your refi.
1. If you’ve got good credit, keep it that way.
This is no time to get lax. Even one late payment can impact your score and keep you from getting approved or securing a better interest rate. Stay extra alert while you’re waiting for your loan to close to make sure nothing can derail your refi.
2. Don’t change your habits.
Think that laying off your credit cards will look like responsible spending to the bank? Don’t assume. They look at your long-term spending habits and they want to see steady patterns of behavior. A sudden change could trigger a red flag, so be sure to ask your lender before you do anything different. That includes overspending on your credit cards. You can always go on a shopping spree after your loan is closed.
3. Don’t open any new accounts.
This is not the time to open an Old Navy account to save 20% on your winter wardrobe or apply for a Best Buy card to finance a new TV. Steady and stable—that’s what the banks want to see. They don’t care that your winter coat is two years old or that your TV is only 42 inches.
4. Don’t close any accounts, either.
If you close credit cards, your score can actually fall. “That’s because closing card accounts impacts a key credit scoring factor called a credit utilization ratio—the amount of debt you have compared to your available credit,” said CreditCards.com. “As your debt levels rise relative to your limits, your FICO score is likely to fall, potentially costing you thousands of dollars in interest charges when it comes to refinancing a home.”
5. Be careful with the stuff you find on your credit report.
Did you pull your credit report and find an old collection account or charge-off? You might think that paying these items off right away is the best move to get rid of them for good and raise your score, but charge-offs and the like can be complicated. It’s best to talk to your lender first. He or she may think it’s best to leave them alone, or they may have a good strategy for having the items removed from your credit report.
6. Don’t move your debt around.
Balance-transfer credit cards are a great option for consolidating debt and potentially lowering your payment, but think twice before opening new cards (see #3 above) or moving balances around. Your lender will be able to lay out the best course of action for you.