What Happens If I Use My Credit Card on the Closing Date?

Homeownership represents a significant financial milestone for many, and the period leading up to the finalization of a home loan, known as the closing date, is particularly sensitive. This is the point when property ownership is officially transferred, and all financial agreements are finalized. Borrowers often find themselves eager to make purchases for their new home, but using a credit card around this sensitive time can introduce complexities that may affect the mortgage process.

Lender Scrutiny Before Closing

Mortgage lenders maintain close oversight of a borrower’s financial standing throughout the loan process, extending this scrutiny right up to the closing date. This monitoring ensures the borrower’s financial stability remains consistent with the initial application. Lenders often perform a “credit refresh” or a final soft credit check just days before closing, typically within one to three days, or even on the very day. This check aims to identify any new debt or significant changes in the borrower’s financial profile.

A primary area of focus for lenders is the borrower’s credit score. Any new credit card application triggers a hard inquiry that can temporarily lower it, usually by a few points. Multiple inquiries in a short timeframe can have a more pronounced negative effect. Furthermore, opening a new account can reduce the average age of a borrower’s credit accounts, which also contributes to a potential score decrease.

Another crucial metric under review is the debt-to-income (DTI) ratio, which compares monthly debt payments to gross monthly income. Lenders calculate this ratio by summing all recurring monthly debt obligations, including the projected new mortgage payment, and dividing that total by the borrower’s gross monthly income. The introduction of new debt, such as a significant credit card balance, can directly increase this ratio.

Lenders also specifically look for new accounts or large purchases that could alter a borrower’s financial picture. This includes financing big-ticket items like new furniture, appliances, or a vehicle. Even if a large purchase is made with the intention of paying it off quickly, it can still trigger flags and raise concerns for the lender. Beyond credit and debt, lenders re-verify employment status shortly before closing to confirm consistent income.

Direct Impact on Your Mortgage

Using a credit card for significant purchases on or around the closing date can have direct and significant consequences for your mortgage approval. Changes detected by the lender during their final checks can lead to new loan conditions or even delays in the closing process. If new debt or a lowered credit score is identified, additional documentation or explanations may be required from the borrower. This often necessitates a re-evaluation of the loan by underwriting, which can push back the scheduled closing date.

The most severe outcome is a loan denial, as significant changes to the debt-to-income ratio or overall creditworthiness are reasons for a mortgage application to be rejected. If new credit card debt pushes the DTI ratio above the lender’s acceptable limits, which commonly range from 36% to 43%, the loan may no longer qualify. Data from 2024 indicates that nearly 20% of home loan applications were denied, with credit issues and high DTI ratios being primary factors.

Specific types of credit card use carry varying levels of risk. For instance, a large credit card purchase that significantly increases the outstanding balance directly impacts credit utilization, which in turn can lower the credit score and inflate the DTI ratio. This change might result in the lender offering a higher interest rate, increasing the total cost of the loan over its term, or even withdrawing the loan offer entirely. Simply opening a new credit card, even without a balance, can trigger a hard inquiry on your credit report and reduce the average age of your credit accounts. Even a small, temporary dip in the credit score from such activity can influence the final interest rate the lender is willing to provide.

Navigating Post-Purchase Situations

If you have already used your credit card for a significant purchase near the closing date, communicate transparently with your loan officer or lender about any financial changes. The lender is your primary resource for navigating potential issues.

You should be prepared to provide clear explanations and supporting documentation for any new inquiries or increased debt. This might include receipts for purchases or updated bank statements to demonstrate the source of funds or the nature of the transactions.

It is advisable to avoid any further credit card use or opening new lines of credit until after the loan has officially closed. While small, everyday transactions are generally not a concern, any large purchases should be deferred until after you have taken ownership of the property. Your lender can offer specific guidance tailored to your unique financial situation and help you understand how to mitigate any potential negative impacts.