Credit Alert! - Deposit Accounts

Last month we had a dilemma arise, but learned a great lesson that we want to pass along. We had a client that we were working with to help him get his credit score improved. We ran an analysis and determined that if he paid a credit card down, we could get the improvement we needed in the score. When he actually paid the card down and we re-ran the credit, the score did not improve as much as we had anticipated. The issue was that the week before, he had opened a deposit account with a local credit union and they pulled his credit when they opened the account. He had no clue they were going to do this so he had not told us about it either. The additional inquiry on his report resulted in the new score being 10 points lower than what our analysis reflected it would be. We wound up having to pay more down to get his score where it needed to be.

When you tell your clients not to do anything credit related when they are in the purchase process (we have talked before about the need to counsel them on not opening any new debts and not even having credit checked during the mortgage process), you may also want to let them know that even opening a deposit account, where all they are doing is putting money in the account, could result in a credit inquiry. Fortunately in our case, we had time and the client had the extra money needed to pay another debt down and get his credit score where it needed to be. But that might not always be the case.

Always remind your borrowing clients that they need to intentionally avoid anything that would result in a new credit item or a new inquiry during their mortgage process. It can cause delays, additional documents needed, and in some cases could negatively impact the score and affect the ability to obtain financing.