Yes, Last-Minute Credit Checks Before Closing Are a Thing

credit score changes before closing

With pre-qualification in hand, you found the perfect house and made an offer, which was accepted. You then formally applied and was approved for a mortgage loan. What’s left but to count down the days until you move in?

News flash: Nothing is final in the world of mortgage loans until you sign the papers and get the keys in your hand. Unfortunately, changes in your credit scores during the interim could jeopardize your closing.

Will a Mortgage Lender Really Check Your Credit Again Before Closing?

Although your three credit reports and credit scores were likely checked by your mortgage lender when you initially applied for your loan, that does not mean the lender will not check your credit again later in the underwriting process. You will want to avoid taking any actions that could potentially change your credit picture. If your credit scores were considered borderline at the time of your pre-approval, then this impending "re-check" of your credit can be especially problematic.

The reason most lenders will require a final credit check prior to closing is because the loan process commonly takes 30 to 45 days to complete, sometimes even longer. A lot can change from a credit risk perspective during that amount of time. In fact, Fannie Mae-backed mortgage lenders are required to track "changes in borrower circumstances" between pre-approval and closing. Your credit scores may have met the lender's qualification standards for your rate at the time of your initial application, but to protect its investment, the lender is probably going to want to be sure that you are still eligible for that same loan program before you actually close.

Credit scores are not a permanent or even semi-permanent fixture on your credit reports. Instead, your credit scores are a snapshot evaluation of your level of credit risk at a single given point in time.

How Often Do Credit Scores Change?

Now that you know your lender will probably re-check your credit prior to closing, you may be wondering how often your credit scores change. Believe it or not, your credit scores can potentially be different every single day. Credit scores are not a permanent or even semi-permanent fixture on your credit reports. Instead, your credit scores are a snapshot evaluation of your level of credit risk at a single given point in time.

Your credit risk level fluctuates because of the changes in the information that appears on your credit reports. When your credit reports change (i.e. higher balances on credit cards, new accounts, new delinquencies, etc.), your credit scores are almost certain to change as well. Whether your credit scores are pulled one day apart or 30 days apart, differences in your credit scores are not at all uncommon.

What Happens If Your Credit Scores Drop Between Pre-Approval and Closing?

You may not be aware that certain actions could lead to a change in your credit scores. You might not realize, for example, that charging a new $3,000 mattress on your credit card account could lead to an unforeseen drop in your credit scores. However, it can. And that’s why mortgage lenders are pulling these so-called back-end credit reports.

If your credit scores drop between the pre-approval and your closing date, it could be very bad news. In fact, if your credit score drop is significant you might find your mortgage closing delayed or even canceled. To avoid such a problem, it is best to completely shelve your credit card usage and put all other credit-related transactions on hold while you are going through mortgage approval, underwriting and closing. Until you sign on the dotted line, it is better to be safe than sorry.