You know your lender checks your credit when you apply for the mortgage. You probably think you are ‘in the clear’ once that report is pulled, right? You figure once the lender approves you for a loan, there’s no reason for them to look at your credit again.
Unfortunately, this is wrong. Many lenders do pull your credit one more time before the closing. They want to see if anything has changed since they approved your loan. If you think about it, you can see why lenders want to do this. How much time has passed since you received your initial approval? A month, two or three months? A lot could happen to your credit in that time!
What Lenders Look For in the Second Credit Check
So now that you know that your lender will pull your credit again before you close on the loan, it’s good to know what they look for on that report.
For starters, they want to see that your credit score is about the same as when you applied for the loan. Chances are that it won’t be the exact number because credit scores are continually changing, but if it’s within the same range, you should be good.
If, on the other hand, your credit score is drastically lower, you could have a problem on your hands. The lender is going to want to investigate and find out why your credit score dropped. This could mean a delay in your closing. It could even mean that your closing is canceled altogether, depending on what they find.
Lenders will look for the following:
- Did you take out any new loans or open any new credit cards? Any new debt is a red flag for lenders. They will have to recalculate your debt ratio to see if you still qualify for the loan.
- Are there inquiries on your credit report? Even new inquiries on your credit report could be a red flag. It’s a sign to lenders that you may have taken out another loan that isn’t reporting on the credit report yet. The lender will need to dig a little deeper to find out if this is true.
- Do you have new collections showing on your credit report? This is another red flag lenders will have to investigate. If there’s a new collection, they will need to know where it’s from, the amount, and figure out if you can pay it. If it’s a medical collection, the lender may let it slide. Any other type of collection, though, will likely have to be paid prior to closing.
- Do you have a lot of late payments suddenly? This could signify that you have a financial issue. Maybe you lost your job or something else happened that has made it hard to afford your bills. The lender will want to think twice about writing a loan for you.
The bottom line is that you must be careful once you receive that loan pre-approval. Try to freeze your credit as it stands at that moment. Don’t apply for new loans and don’t pay your bills late. Don’t go out and make large purchases or think you can rack up your credit cards and no one will notice, because they will and it could cost you the closing. Instead, keep things just as they were until you sign on the dotted line on your closing documents. Once you have the keys in your hand, you can then do what you want with your spending.Click to See the Latest Mortgage Rates»