1. Disputing Credit Accounts
The Action: The consumer has a disagreement with a particular creditor and takes action by disputing any aspect of the credit obligation. The creditor then places the account in the dispute status, changing the credit reporting to “in dispute.”
Why it’s an Issue: The automated underwriting system used by lenders literally ignores any accounts in dispute. As such, the results are flawed. In other words, because it doesn’t provide an accurate rating of the true credit picture, the borrower would have to call the creditor and remove the account from dispute status, and then the lender reruns the automated underwriting to ensure the loan still gets approved in the system.
2. Applying for Credit During the Loan Process
The Action: The consumer applies for credit while they’re in the process of seeking final loan approval.
Why It’s an Issue: Undisclosed debt could change any dynamic of the loan, and more importantly, could cause your loan to be denied. If your mortgage loan has not closed, taking out additional debt could change your credit score, which is material to your ability to qualify for the home mortgage. In addition, any associated debt with a new payment such as a monthly car payment, could easily drive up your debt-to-income ratio and jeopardize your loan approval.
3. Recent Debt Not Reported to the Credit Bureaus
The Action: The consumer takes out a credit obligation, then immediately applies for a mortgage.
Why It’s an Issue: If you have recently acquired debt that is not showing up on your credit reports because it is a brand-new obligation — say in the past 30 days — it would be wise to inform the lender so they can account for it in your debt-to-income ratio. Additionally, if the lender is privy to the information upfront, they can either obtain an updated credit report or credit supplement where they go directly to the creditor to verify any pertinent balance and payment information.
4. Maxing Out Credit Cards
The Action: The consumer accumulates a balance in an excess of 50% of the credit line while loan is being processed
Why It’s an Issue: Maxed-out credit cards — especially accounts where the balance is equal to or over the total credit limit — are a red flag for lenders in the decision to approve your new mortgage. This situation also wreaks havoc on all three credit scores the mortgage lender looks at.
5. Carrying High Balances on 0% Credit Cards
The Action: The consumer obtains a high debt load on 0% credit cards.
Why It’s an Issue: If you’re planning on getting a mortgage in the near future, don’t let the short-term 0% credit card offer fool you into thinking it’s OK to run up debt on that card. Why? You’ll still need to make that payment every month. It doesn’t matter if your balance is $100,000 at 0% interest, it’s about the payment, and the lower the payment, the better