Credit Score Changes During Underwriting Process

Credit Score Changes During Underwriting Process

Gustan Cho Associates are mortgage brokers licensed in 48 states

What happens if you apply for a mortgage and your credit score changes during underwriting process? Will the lender cancel your approval? Will your interest rate be higher? Or does it even matter? Lenders check your score when you apply for a home loan, often at least once before closing. A credit score change during the underwriting process usually does not hurt you unless it’s due to new derogatory information. Sometimes, improving your credit score during underwriting process can get you better pricing. In the following paragraphs, we will cover credit score changes during underwriting process.

When Do Lenders Pull Credit Scores During Mortgage Process

Mortgage lenders check your credit report when you apply for a home loan. Normally, they’ll get your scores from the three major credit bureaus—Experian, Equifax, and TransUnion. If the lender pulls all three scores, the one underwriters use is the middle score. If a lender pulls two scores, it uses the lower of the two. The score used is called the “representative credit score.” If you have multiple applicants, the score used to set your interest rate and determine your loan eligibility is the representative score of the borrower with the worst credit. 

How Long Is The Initial Credit Score Used To Qualify Good For?

Your initial credit report is good for 120 days and determines your loan eligibility and interest rate. If your mortgage loan does not close in 120 days, the lender will pull a new report, and that score becomes the “official” one for your file. Before closing, most lenders perform a quality audit and pull your credit report again.

Mortgage underwriters will look at several factors, such as credit inquiries. Inquiries could mean you’re shopping for credit and taking on more debt than you disclosed on your application.

New accounts that might make your mortgage less affordable. Derogatory items that mean you’re not a good risk. Any of those issues would, at best, send your application back to underwriting and delay your closing. At worst, these surprises could kill your home loan approval. 

What Happens if Credit Scores Increase In The Mortgage Process

When you apply for a mortgage, a lender’s first step is pulling your credit report. A credit check lets the lender know if you meet the minimum credit guidelines for financing. In addition, your credit score is a factor in determining your interest rate.

Applicants with excellent credit get better mortgage offers than borrowers with lower scores. It’s fairly common for borrowers to apply for mortgages without locking in their interest rate. 

They might want to get preapproved without having yet lined up a specific property. Or their home is under construction, and the loan won’t close for months.  Or they are trying to refinance and don’t want to lock until rates drop. 

Can You Use Higher Scores If Credit Scores Increase In Mortgage Process?

If the credit score changes during underwriting process, it results in a higher credit score, and some mortgage lenders will let you reprice your rate with the updated credit score changes during underwriting process. If your credit score is higher, your rates will be lower. You do not have to worry about a rate reprice if your credit scores drop.

Improvement of Credit Score Changes During Underwriting Process

Your mortgage rate is not set as long as you are locked in. If your credit score increases during the loan process and you are not yet locked in, you’ll often get a higher score when you lock in your rate. You won’t benefit from a better credit score if you are already locked in.  Even one point can change your interest rate. Most loan pricing is done in tiers. If you increase your FICO score from 679 to 680, you hop into a better tier and get a lower interest rate. If you’re already at 680, you’d have to add 20 points to get to 700 and the next higher tier. 

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What Happens if Credit Score Drops During the Mortgage Process?

Credit Score ChangesIf your credit score increases during the loan process, it won’t hurt you and might help. But things can get a lot more complicated if your credit score drops during underwriting process.  Fortunately, a lower score at closing is not always a reason to increase your mortgage rate or decline your loan. Credit scores constantly move up and down, and a small drop won’t cause the lender to reprice your mortgage or reverse your loan approval.

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Recent Late Payment Drops Credit Scores During Mortgage Process

If your credit score plummets because of a derogatory event like a missed payment or a significant addition to your debt load, your loan approval may be in jeopardy.  Your file goes back into underwriting. If you still meet the lender’s guidelines, you’ll probably be able to close your loan. If you don’t, you’ll no longer have a loan. In that case, you can save it by changing programs or delaying your loan until you fix your credit. 

Fannie Mae sends your application back into underwriting if additional debt turns up, and it would increase the total expense ratio beyond program limits.

New derogatory information is detected, or the credit score has materially changed. Again, if you don’t close your loan within 120 days of pulling your initial credit report and your credit score drops, the lower score becomes the official score. That can be a problem if it’s below the minimum required for that loan program. It can also impact your mortgage rate.

Steps in Monitoring Your Credit During The Mortgage Process

Here’s how to protect your credit during the mortgage process:

  • Avoid applying for new credit—no furniture for the new home, no new car, no increase in credit limits.
  • Do not increase your credit balances.
  • Credit utilization makes up 30% of your credit score.
  • Pay every account on time. Set up automatic payments if this is an issue for you.
  • Payment history comprises 35% of your credit score; one missed payment can take off 60–120 points!
  • If you have old collection accounts, do not contact the creditor, dispute the balance, or have any activity because old accounts get less weight in scoring models.
  • Any activity on the account can make it new again.

What If Credit Scores Dropped During Underwriting Process

Credit scores and income are two of the most important factors determining whether a mortgage borrower qualifies for a mortgage loan.

All mortgage loan programs have minimum credit score requirements. FHA Guidelines on credit scores. To qualify for a 3.5% down payment, the FHA mortgage home loan is 580 FICO.

For borrowers with credit scores below 580 FICO, the home buyer needs a 10% down payment on their home purchase. Fannie Mae Guidelines On Minimum Credit Scores to qualify for conventional loans is 620 FICO.

How Credit Scores Affect Debt-to-Income Ratio Caps 

Credit scores can also determine debt-to-income ratio limits on FHA loans. The automated underwriting system may consider borrowers with credit scores under 620 FICO at higher risk.

The AUS algorithm may cap the debt-to-income ratio to 31% front-end and 43% back-end on lower credit score borrowers on FHA loans.

In general, statistics show borrowers under 620 credit scores will get an AUS approval at no greater than a 43% debt-to-income ratio, while borrowers with higher credit scores will get up to 46.9% front-end and 56.9% back-end debt-to-income ratio approval.

Getting Approve/Eligible per AUS With Higher Debt-to-Income Ratio

In general, a higher debt-to-income ratio means higher-risk borrowers. The chances of a homeowner with a high debt-to-income ratio defaulting on their home loan are greater than that of a borrower with a lower debt-to-income ratio.

Borrowers with credit scores of 620 or higher can have a maximum debt-to-income ratio cap limit of 46.9% front end and 56.9% back end to get an approve/eligible per the automated underwriting system.

Your debt-to-income ratio (DTI) helps lenders decide whether to approve your mortgage application. But what is it exactly? Simply put, it is the percentage of your monthly pre-tax income you must spend on your monthly debt payments plus the projected payment on the new home loan.

Debt-to-Income Ratio Guidelines on Manual Underwriting

Borrowers with higher debt-to-income ratios must ensure they boost their credit scores to over 620 FICO. Manual underwriting guidelines on FHA and VA loans cap the debt-to-income ratio as follows:

  • 31% front-end and 43% back-end debt-to-income ratio with no compensating factors
  • 37% front-end and 47% back-end debt-to-income ratio with one compensating factors
  • 40% front-end and 50% back-end, with two compensating factors

The above debt-to-income ratio cap is a recommended guideline by HUD and the VA. Mortgage Underwriters can surpass the DTI-recommended caps on manual underwriting if they feel the borrower has strong compensating factors. Underwriters have a lot of power and underwriter discretion on manual underwrites.

Credit Scores Fluctuations During Mortgage Process

Credit Scores do fluctuate daily. There are tricks of the trade where a borrower can maximize their credit scores. Maxed-out credit cards will plummet a consumer’s credit scores. The good news is that the drop in credit scores on maxed-out credit cards is not permanent.

Consumers’ credit scores will instantly go back up once they pay down their credit card balances.

Home Buyers should consider paying down all their credit card balances before applying for a mortgage loan. Lower balances can have the best and highest credit scores possible when their mortgage loan originator pulls their credit.

Does Credit Card Usage Affect Mortgage Approval?

Does Credit Card Usage Affect Mortgage Approval?A high credit card balance will lower credit scores during the mortgage process. Are you worried about credit scores dropping during the underwriting process? No need to worry. Many mortgage loan borrowers often question which credit scores mortgage lenders will use to qualify them for a home loan. This is because credit scores always fluctuate. As mentioned earlier, your credit card balance will cause volatility in your credit scores. A maxed-out credit card will definitely plummet consumer credit scores.

How Paying Down Credit Card Balances Will Skyrocket Credit Scores

If you have five maxed-out credit cards and pay those five balances off, you can easily boost your credit scores by over 100 FICO points just by paying down your credit card balances.

It is highly recommended that you pay down all of your credit card balances to 10% of your available credit limit to get the best possible credit scores possible.

Before applying for a home loan, make sure that you pay down all of your credit card balances. Whenever loan officers pull credit, it is normally a hard credit inquiry. Each hard credit inquiry will drop credit scores by at least two to five FICO points.

Which Credit Scores Do Lenders Use To Qualify Borrowers

Borrowers should not be worried about credit score changes during underwriting process because the original credit score is used and is valid for 120 days. The credit scores mortgage lenders use are the middle of the three credit scores. There are three credit reporting agencies:

  1. TransUnion
  2. Experian
  3. Equifax

Lenders pull credit from all three credit bureaus. It is called a tri-merger credit report. Lenders are well aware of credit score changes during underwriting process. They will use the middle of the three credit scores of the tri-merger credit report. The credit score used to qualify will be used throughout the mortgage process.

How Do Lenders Determine The Qualifying Credit Score For Borrowers

The best way to illustrate how mortgage lenders determine the qualifying credit score of borrowers is to show an illustration and case scenario. For example, here is how lenders use a borrower qualifying score:

  • may have a 500 FICO credit score on TransUnion
  • 600 FICO credit score on Experian
  • 700 FICO credit score on Equifax
  • The middle credit score is a 600 FICO credit score of Experian
  • So that credit score will be used throughout the mortgage approval process

How Long Is The Initial Credit Score Valid For?

This credit score will be valid throughout the whole mortgage underwriting process. The credit report submitted and credit scores used to qualify the borrower are valid for 120 days or four months. If the mortgage approval process gets extended beyond 120 days, a new credit report will need to be pulled/ The new credit score will be used to qualify the mortgage borrower, and the old credit score will no longer be valid.

If borrowers’ credit scores drop during the mortgage process, it does not matter. This is because the initial credit scores submitted with the mortgage loan application to the mortgage processing and underwriting will be the credit scores used throughout the entire mortgage loan process. It will be a problem if credit scores drop during the underwriting process if the borrower decides to change mortgage lenders during the mortgage process. This holds true because the new lender must re-pull the borrower’s credit, and the new credit report and scores will be used.

What Happens If Credit Scores Increased During The Mortgage Process

Conversely, if credit scores have increased during the mortgage approval process, borrowers can use the new higher credit scores to lock in a better interest rate. Not all lenders allow this. However, we allow the higher credit score to be used to lock in a better mortgage rate.

Many lenders do not allow borrowers to use the higher credit scores and replace them with the lower ones submitted with your original mortgage loan submission.

We do allow it at Gustan Cho Associates.  If you have any questions, contact and discuss them with the mortgage loan originator, call us at 800-900-8569, or text for a faster response. Or email us at The team at Gustan Cho Associates is available seven days a week, on evenings, weekends, and holidays.

This blog on credit score changes during underwriting process was updated on November 28th, 2023.

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