You know that lenders check your credit to qualify you for a mortgage, but when do they check it? Do you need to worry about your credit once you get the approval?
Get these answers and more below.
Checking Your Credit When you Apply
Lenders check your credit when you first apply for a loan. It’s one of the first things they do. Your credit score determines if a lender will even move forward with your application. If your credit score falls within the requirements, then the lender will move on to determine your loan eligibility, looking at your income, assets, and debts.
Don’t Get Comfortable
Once you get your pre-approval, you may think lenders are done checking your credit, but they aren’t. Lenders still check your credit again typically right before you close on the loan. It may seem strange for lenders to check your credit again, but a lot could change from the time of your pre-approval to the loan closing.
Pre-approvals are often good for at least two months, sometimes longer. Then you have to add the time it takes to process and underwrite the loan. You could be looking at several months in between the pre-approval and loan closing. A lot could happen within that time. That’s why lenders check your credit again before you close.
What Lenders Look for in Your Credit Report Before Closing
Lenders run a second credit check before closing to look at your credit score and credit history. They want to know two things:
- Did your credit score stay the same or close to it? If your credit score dropped, lenders need to make sure it didn’t drop so much that you no longer fit the loan’s criteria.
- Did you rack up more debt? Your debt-to-income ratio plays a role in your loan approval. If your debts increased, your DTI probably increased. If it increased so much that it doesn’t fit the loan’s criteria, you may lose your loan approval.
What Could Damage Your Credit Score?
Believe it or not, your credit score could change drastically within a few months. It’s best to keep your credit as similar as possible. In other words don’t:
- Pay your bills late – Any payment made more than 30 days late can damage your credit score quite a bit since payment history makes up a large part of your credit score.
- Rack up your credit cards – Using your available credit increases your credit utilization rate. This is another component of your credit score. The more debt you have outstanding, the lower your credit score may fall.
- Open new accounts – New credit accounts lower your average credit age. The newer your accounts are, the lower your credit score falls. Established accounts pose the lowest risk.
- Close old accounts – Just like you shouldn’t open new accounts, you should leave old accounts open. Rather than closing unused credit card accounts, just put the cards aside. Keeping the account open helps keep your average credit age high.
Do what you can to keep your credit score as close to the same as possible. Without drastic changes, you shouldn’t have many issues. Stay in contact with your loan officer and discuss any issues that you face with your credit while you wait for your loan closing. Address any issues right away to avoid delays in your closing.