Credit Optimization Before Buying a House

[kslemmp]

Hello! 

I first want to say that I am relatively new to all of this. I understand the basics of what helps and what hurts your credit scores. I just recently learned that there are different scores that mortgage lenders use when determining your interest rates. I pulled those scores and now am looking to see if there are ways to increase them. My middle score is 726 (FICO 5), and I see that one of the things listed as hurting the score is a "new account" I am assuming that is a credit card I opened a year and 4 months ago. At what point will that not be considered a new account anymore? I was considering opening a new credit card but was holding off to not have a "new account" on my report, but since it is already flagged from the older card, should I be ok to go ahead and get this one? I see "Many new accounts" and "number of credit accounts" listed as hurting my score on my two other scores and not sure where that is coming from. I only have 2 credit cards currently. 

Any insights/tips on this or how to increase my scores are appreciated! I have also seen that mortgage lenders may be going to a different method in determining rates? 

[Cowboys4Life]

DO NOT open any new credit right now.  Save it for after the loan closes and you have moved in.  I waited about 30 days after closing and went on an app spree.  If your middle score is 726 on mortgage scores you are fine.  That is tier 1 and you should get a great rate.  Get your DTI as low as possible and with AZEO you should have no issue getting a good solid mortgage from a reliable lender.

[kslemmp]

I appreciate this! I thought I read that tier 1 was like 760+?

[ForwardLooking]

I would not worry about getting your credit perfect.  Focus on DTI if anything and make sure your active accounts are up to date payment wise.  Good thing is old unpaid collections and chargeoffs will not hurt you too bad.  I am going through the mortgage process now.  Scheduled to close in about 2 weeks.  I have an old unpaid collection and an unpaid charge-off from 6 and a half years ago and the underwritter did not even ask questions.  My middle score is 719 and I am locked into a 4.625 % rate because of seller and lender buydowns.  The market is extreamly good for buyers right now, so don't wait too long.

[FicoMike0]

Do not open a new account before mortgage event.

Do azeo, that should help scores.

For mortgage specific advice, post on mortgage board.

[FlaDude]

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@FicoMike0 wrote:

Do not open a new account before mortgage event.

Do azeo, that should help scores.

For mortgage specific advice, post on mortgage board.

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+1. One year is a new account threshold for many FICO score models so resetting that from 16 months to zero will likely cause score dings. Adding a new inquiry will too if you don't already have any less than a year old.

[kslemmp]

If 1 year is the threshold for most models, then why am I still getting "dinged" for a new account that is over 1 year old?

[FlaDude]

I don't know, there may be additional thresholds past one year. There is also the possibility that the reason given isn't really an issue, that's not the first time that's been suggested here.

FICO scores are driven by algorithms, some details are known, some are not. Reason codes don't drive the scores, they are just something the various web sites show to try to explain your score.

[Thomas_Thumb]

Never open a new account in the months leading up to a mortgage. This is especially important if your most recent account is over 12 months old. In that case opening a new revolving credit account can drop score 15-25 points.

Side note: I had the "you opened an account relatively recently" negative reason code until my newest account reached 5 years. It was probably costing me a couple points on my mortgage Ficos. Opening a new CC would have dropped my scores considerably.

Keep that middle mortgage score above 720 and try to get it above 740 by practicing AZE1 - which means reporting a "small" balance on only one REVOLVING account. Small = under 9% of the card's credit limit. 

[Patient957]

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@kslemmp wrote:

 My middle score is 726 (FICO 5), and I see that one of the things listed as hurting the score is a "new account" 

I believe Fico lists reason codes in order of impact to your score.  What are the other reason codes listed above this one?   These are where you will want to focus your efforts.