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How to Manage Your Credit Score When in Escrow

Credit scores are constantly fluctuating and you want your score to be as high as possible before you close escrow. The last thing you want is for it to decrease and cause your interest rate to shoot up or cause you to lose the property before the closing date. There are a few things you should be aware of when in escrow in order to ensure the health of your credit score and the safety of your future property.

Collections and Charge-Offs:

One way to make sure that this does not happen is to pay off any collections or charge-offs at the closing. Paying them beforehand can put you at risk, if the credit report changes and the date of last activity becomes current. You could fall out of escrow for a credit score being too low if a lender pulls a back-up credit report before the escrow closing date.

Why This Happens:

When the date of last activity on a collection or charge-off becomes current, it is not supposed to count against your credit score as long as the borrower pays the debt – which should affect it positively. However, it is very common that you pay a charge-off or collection and the date of last activity becomes current in which your score can take a hit. Unless the creditor or collection agency agrees to remove the derogatory item upon payment, it is imperative that you pay it off through escrow. That way there is no chance for the date of last of activity becoming current or your score taking a plunge causing potential difficulties in closing the loan if the creditors pull a back up report.

You want to be very careful in choosing when to pay off collections and charge-offs as it could count against your score in such vital moments. If you do not have any charge-offs or collections through escrow and you want a short-term solution to a small credit boost if needed – you can pay off your credit cards early.

Credit Card Pay Off:

A lot of credit card companies report the balance the date the statement closes. Even if you pay off your credit cards when the statement comes, you will still have that balance showing for the whole 30 days. If you are on the cusp, it is very important to pay off your credit cars before the closing date. Call your credit card companies and find out when that date is so you can pay the balance before it closes. That way it reports at a lower balance and raises your credit score. Then when your credit is pulled for escrow, it will read higher than it had before.

A good credit score can make or break your deal. Therefore, you want to make sure that you are taking the right steps toward financial health.

Brought to you by Financial Solution Services' Research & Development Team