Credit do's & don'ts before a refinance

The strength of your credit score makes a big difference in determining what rate you get when applying for a home mortgage refinance.

Your decisions in the weeks before refinancing can have a crucial effect on your credit score, according to Carolyn Warren, a mortgage industry professional and the author of "Homebuyers Beware," which examines mortgage and credit insider secrets.

"Get busy, and you can make a significant difference in your credit score in the 30 to 45 days before you refinance," Warren says.

Here are some do's and don'ts for the four to six weeks before refinancing:

Do: Check your free credit report for errors.

Checking your credit report may pay big dividends, says Ilyce Glink, a personal finance author and owner of the consumer-advice site Check your credit report for free at myBankrate.

"Anywhere from 75 percent to 80 percent of all reports have errors," Glink says.

If you find mistakes such as incorrectly spelled surnames, wrong street addresses or inaccuracies in your job history, write a letter to the credit bureaus and ask them to fix the errors.

"The stability will look better" to lenders, Warren says.

Don't: Open any new lines of credit.

If you plan to refinance soon, reject the temptation to open any type of credit card account. Every time you open a new account, your credit score takes a hit.

"If you've picked up new credit cards, you've just sabotaged your credit score," Warren says. "It's not worth saving 10 bucks."

Also, do not apply for other loans before securing your new mortgage. Some people might assume that because a car is cheaper than a house, it's better to apply for a car loan first.

"It's just the opposite," Warren says. "Get the major, most important purchase first, and get the car later."

Do: Pay down high balances.

Paying off some debt can help burnish your credit credentials.

"Pay down debt so your debt-to-credit-available ratio is less than 20 percent, which will help push up your score," Glink says.

However, don't close out all your accounts right before refinancing -- keep four to five lines of credit open. Glink suggests maintaining a mix of different types of credit, such as car loans, mortgages, school loans and credit card accounts.

"It shows creditors you know how to manage credit," she says.

Do: Opt out of pre-screened credit card offers.

A borrower who requests to no longer receive credit card offers will not have credit card companies running the borrower's credit history -- and dampening his or her credit score, Warren says.

Opting out of credit card offers also prevents phone or e-mail harassment from other mortgage-loan and refinance companies.

You can opt out by visiting the Consumer Credit Reporting Industry's official Web site.

Don't: Pay anyone to fix your credit.

Nonprofit agencies can help you pay down debts, but they won't "fix" a history of nonpayment and delinquency. Beware of any business that claims it will repair your credit fast.

"The only person who can truly fix your credit score and history is you," Glink says.


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