DO's and DON'Ts when applying for a loan

1. Don't apply for a new credit during the process or make any big purchases.

2. Do stay current on existing accounts.

3. Don't pay off collections during the process. 'The immediate effect will be to lower your credit scores,' says Law. "The collection agencies will report the debt, which had been sitting unpaid and each month having less effect on the report, as a paid-off collection that has activity right now. So it is considered a negative on your immediate report even though it will be a positive for the long run. If you have items that you want to pay, pay them at closing. That does not have the negative effect on your report for your refinance or purchase of a home and allows your credit a chance to rebound before you have to use it again. Paying off collections is a good thing, but timing of the payoff could cost you a bit in interest rates if you do it at the wrong time."

4. Don't close credit cards or max out existing ones. Don't consolidate debt. "Don't raise red flags with the underwriter. No changing names or addresses. These things can all wait until after the loan has closed."

5. Do join a credit watch program. Banks, credit unions or credit card companies usually have free programs.

Top factors affecting your credit score

Length of credit history: Having accounts open for a minimum of two years will help, but the longer the better

On-time bill payment: Late payments take seven years to clear up.

Amount of debt: This especially matters on credit cards with balances more than 30 percent of the credit limit.

Errors: "Seventy-nine percent of credit reports contain errors of some type, 25 percent bad enough for credit denial," says Michael Law, a broker at Integrity Mortgage and Financial Services Inc. in Lake Worth, Fla. "If you find errors, report it to the agencies via certified mail. If you have proof of the error, include a copy. The agency will respond within 30 to 45 days. Keep the letters to the credit agencies concise and to the point."

Five factors credit rating agencies consider in factoring your credit score:

5-15 percent: payment history

30-40 percent: outstanding balances

15-20 percent: credit history

10-20 percent: type of credit

10-20 percent: number of inquiries