When your offer on a home has been accepted and you begin the delicate process towards closing, it is crucial to keep your credit picture unchanged. How crucial? Well, it’s enough to give you nightmares.
I’m thinking of the young man we closed recently on a condo purchase. He’s been a dream client for me. He’s done everything I’ve advised him to do at every step of the process, and now he’s found a place to own that he absolutely loves and that he can afford. And through the whole process he’s shown persistence in dealing with a seller who has been, um, rather less than businesslike.
After closing we chuckled over his nightmare, a bad dream about creditworthiness he’d had a few weeks before. I had been drumming it into his head that during the period between contract acceptance and closing it was crucial not to change his credit picture in any way. I told him, don’t pay off cards, don’t buy anything, don’t make any financial moves other than routine bill paying.
Then he came and said he had paid off the $8,000 outstanding balance of his house on a credit card. Ooh, ouch! We started to figure out what this had done to his credit picture, and he began to panic – deservedly.
He thought he was doing a great thing, moving the remaining balance to a zero-interest card. Anybody can be forgiven for thinking this is a good move – but it can be disastrous. It adds to your record a new creditor with no history, and one new loan with no history. Why is this important?
When lenders review your credit they want to see THEIR future in YOUR past performance. They want to see:
- The length of time with each credit item (can’t guess the future without history).
- The last date of activity.
- Your credit availability (how much trouble you could get into while owing on their loan).
When you look at your credit record from a lender’s point of view, it makes sense. But we look at credit from our own point of view, and what seems smart and responsible to us can easily damage our record.
Fortunately for my client, after a quick check with my favorite loan officer we determined that his loan approval would still remain applicable for closing. But it was a close call, and he took my warnings to heart – greatly to heart. Later that week he called me and told me he’d had a nightmare where I’d had him strung up by his toes for buying a new car!
No need for that, I told him, so long as you listen to the warnings! It sounds like something from the hanging judge of real estate finance: “You shall be taken from here to a place of repair and hung by your toes until creditworthy.”
Friends, don’t let these nightmares happen to you. When your offer has been accepted you are in a delicate place with your credit and your lender until the moment of closing. Don’t alter your credit snapshot. Keep those toes safe!
