What If My Credit Score Goes Up Before Closing?

An improved credit score during a loan application, especially for a home, is a positive development. This situation can raise questions about its impact on your loan process. This article explores the implications of an increased credit score during this period and provides guidance on navigating the final stages of your loan.

Lender Credit Score Monitoring

Lenders typically pull credit reports multiple times throughout the loan process. The initial credit pull occurs during the pre-approval phase to assess your creditworthiness and determine initial loan eligibility and interest rates. Subsequent credit checks, often referred to as “credit refreshes,” are common just prior to closing. These later pulls are primarily to confirm financial stability and ensure no new significant debts have been incurred that could jeopardize the loan.

While a higher score is positive, initial loan approval and terms are generally based on the credit score at the time of the initial application. A higher score might be noted but does not automatically trigger a re-evaluation of loan terms. Lenders are mainly concerned with detecting negative changes, such as new credit inquiries, increased debt, or late payments, which could impact your debt-to-income ratio or overall eligibility. Credit reports are valid for 120 days; if closing extends beyond this period, a new report will likely be pulled.

Advantages of an Elevated Credit Score

An elevated credit score during the loan process can offer several advantages. A higher score signals lower risk to lenders, which can make them more likely to approve your application. This can also lead to more favorable loan terms, such as a lower interest rate, resulting in significant savings over the life of the loan. For instance, a small improvement in score could move you into a better rate tier, potentially saving thousands of dollars on a mortgage.

Even with a locked rate, an improved score provides a stronger financial profile, making the closing process smoother from the lender’s perspective. Borrowers who notice a significant credit score increase may consider proactively discussing it with their loan officer or lender. In some cases, especially if interest rates have dropped since the initial application, a lender might be willing to re-evaluate terms or offer access to different loan products. This conversation is worth pursuing, as it could lead to better financial outcomes for you.

Preserving Credit Standing Until Closing

Maintaining financial stability is important from loan approval until the closing date. Avoid taking on any new debt, such as opening new credit cards, taking out car loans, or making large financed purchases. These actions can negatively impact your credit score and debt-to-income ratio, potentially raising red flags with lenders and jeopardizing your loan approval. Even minor credit inquiries for new accounts can cause a temporary score drop.

Avoid closing existing credit accounts. Closing accounts can negatively affect your credit utilization ratio by reducing your total available credit, even if you have no balance. It can also shorten your credit history length, both of which are factors that influence your credit score. Continue making all payments on time and in full, as payment history is a major component of your credit score. Avoid making any significant changes to employment or financial accounts without first consulting your lender, as stability is important during this period.