This is the second post in a series on my recent experience applying for mortgage refinancing.

While applying for mortgage refinancing, I asked the loan officer for credit score wisdom based on her experience. I knew most of the advice but I found some of her comments interesting so I’ll post the collection of advice, tips, and cautions:

• A hard credit pull negatively impacts your credit score. A hard pull is a loan application that would result in credit if approved. If you check your own credit, it is a soft pull and does not effect our credit score.
• Check your credit score three times per year for incorrect information and dispute incorrect information. My additional note: be sure to request your credit score through the official site rather than one of the many services that has sprung up. The FTC has a warning on this issue. Checking your own credit is a soft pull which does not impact your credit score. You will not see your FICO score without paying additional money but the most important thing is to check for incorrect information.
• Three to four credit applications in a short period of time for a home loan will count as one hard credit pull. This was not the case in the past when shopping around for a loan could hurt your credit score by causing a high number of inquiries.
• Fixed monthly payment loans (cars and houses) hurt your credit score less than variable payment loans and unsecured debts.
• People who are denied credit often continue to shop for loans which only further lowers their credit score due to the number of recent inquiries. They should find a way to avoid requesting credit for a some time and try to increase their credit score. My note: If you are denied once or twice for a loan, stop asking a bank and check out Prosper.com or Lending Club for a person to person loan instead of going through a bank after one two denials.
• Plan ahead for trouble by applying for a cash out refinancing loan before you lose your job if you think you will or before your payments start becoming late. My advice: build up an emergency fund.
• The credit union where I applied pulls all three of your credit scores (Experian, Equifax, and TransUnion) and uses the middle score.
• If you and your spouse apply together, the credit union uses the lower of you and your spouse’s middle credit scores.
• Both spouses can be on the deed to the property and only have only the spouse with the higher credit score apply for the loan if one spouse has much lower credit. This may be a good idea now that brokers are charging delivery fees on mortgages for lower credit scores.
• Many elderly people run into credit and financial problems by bailing out or co-signing on loans for their middle aged kids or for their grandkids.
• In the case of divorce (even if only one party is on the loan), both people must sign for refinancing. This prevents one spouse from selling the house without the other spouse’s knowledge. However, this also commonly prevents a cash out refinancing at the time a person most needs the cash. (I noticed Lazy Man also posted on Mortgage and Divorce.)
• If applying for a HELOC (home equity line of credit) and refinance your mortgage around the same time, refinance the mortgage first and then apply for the HELOC. The HELOC will negatively effect your credit score more than the mortgage.
• At the credit union where I applied, they will use the same credit report pull for 120 days, so you do not need to add an additional credit check to your credit report if you refinance and then immediately apply for the HELOC with the same bank.
• Cash out refinancing has become more expensive. I explained the extra charges in the post about delivery fees.

Lazy Man and Money recently posted a credit score hack explaining how to use Prosper.com to raise your credit score.

Wise Woman Investor recently posted Four Credit Tips to raise your score:

• Buy your FICO score
• Pay Bills on time
• Reduce your debt
• Don’ open or close any credit accounts

In my opinion, buying your FICO is a good idea if you are planning to by a house, but simply buying your score will not help raise it. The other three tips are sound.

Note: Some of this advice could be state specific or bank specific so check with a loan officer in your area. The one that I spoke with was very helpful in dispensing free credit score and loan advice.

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