Buying Or Refinancing A Home? On Black Friday, Avoid In-Store Credit Card Offers.

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Black Friday is 3 days away. It’s the official start of the 2010 Holiday Shopping Season.

Beware Of “20% Off” At-The-Register

Sales are expected to top 1 billion this year and, since July, businesses have been vying for shoppers and their dollars. In recent weeks, newspaper circulars are getting larger, and in-store discounting is more prevalent.

But one discount that shoppers should think twice about is the popular “Open A Charge Card, Save 20%” promotion. The short-term savings may be tempting, but the long-term costs to a household budget may be huge.

It’s because of how credit scores are calculated.

“New Credit” Works Against Your FICO

According to myFICO.com, “new credit” accounts for 85 out of 850 possible credit scoring points, with new credit defined by such traits as:

• Number of recently opened accounts
• Number of recent credit inquiries
• Time since recent credit inquiries
• Proportion of new accounts to all accounts

Each of these traits are negatives against a FICO score. So, with each new, in-store credit card application, a person’s credit score will necessarily drop. The drop is especially pronounced for persons lacking credit “depth”, or who have made a disproportionately large number of new credit applications recently.

For example, a first-time home buyer with no real history managing credit is going to get hit pretty hard. A 30-year veteran of credit cards and housing payment won’t get hit much at all.

Check Your FICO Loan-Level Pricing Adjustment

For soon-to-be mortgage applicants in Cincinnati, Ohio; Alexandria, Virginia; or anywhere else, credit scores are worth keeping high. This is because credit scores change the mortgage rates and/or loan fees for which mortgage applicants are eligible.

In mortgage circles, FICO-based loan changes are known as loan-level pricing adjustments. They can add up to 3 percent to a loan’s cost, notwithstanding any of the other adjustments, too.

A comprehensive LLPA calculator is available here.

As an illustration of how loan-level pricing adjustments work, assuming 20% equity on a 0,000 conforming loan:

• 740 FICO : No added loan costs
• 720 FICO : 0.250% increase in loan costs, or 0
• 700 FICO : 0.750% increase in loan costs, or ,250
• 680 FICO : 1.500% increase in loan costs, or ,500
• 660 FICO : 2.500% increase in loan costs, or ,500

It’s expensive to have a low credit score — more expensive than the money saved by opening a card at the mall, anyway.

That said, if you know you won’t be applying for a mortgage within the next 6 months, the risk of applying for in-store credit cards is likely small. On the other hand, if you’ll need your FICO soon, consider paying for your gifts full price.

Lower Mortgage Rates Save More Money, Anyway

It’s tempting to take 20% off at Target, Nordstrom’s or wherever, but that 20% savings pales next to what you could save with a new, lower mortgage rate.

After a 7-month rally, mortgage rates are at a 3-month high. The Refi Boom is ending. Therefore, if you haven’t already, consider getting your mortgage application in-process and underway. Mortgage markets wait for no one.

The easiest way to lock a rate? and give me a summary of your situation. I’ll review your notes and reply back with pricing. We can be locked within the hour.

(Post adapted from Bring the Blog, a blog content service for loan officers and real estate agents).

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.