What Happens If Credit Scores Drop During Mortgage Process

Applying for a mortgage can be thrilling and stressful. You might ask: “What happens if my credit scores drop during mortgage process?” Will you lose your loan? Will you have to start over? Can you still close? In this guide, we’ll walk you through what happens if your credit scores drop during the mortgage process, how it affects your approval, and what to do if it happens.

Can Credit Scores Change After Pre-Approval?

Your credit scores can change anytime during the mortgage process, even after pre-approval. Lenders pull your credit early to see if you qualify, but they may also check it again right before closing with a “soft pull” or credit refresh. This second check helps them confirm you didn’t open new credit cards, miss payments, rack up debt, and lower your scores.

What Happens If Credit Scores Drop During Mortgage Process?

If your credit scores drop during mortgage process, here’s what could happen depending on how far along you are in the process and your loan type. Before final approval, if you’re still in underwriting, a drop in credit score might cause the loan to get denied. It can also trigger a higher interest rate, require extra conditions or explanations, and push you below the program’s minimum score. After final approval (Clear to Close) lenders don’t usually recheck scores unless your loan has not yet funded and they discover new debt or late payments.

Common Reasons Credit Scores Drop During Mortgage Process

Wondering why your credit scores drop during mortgage process? Here are some common reasons and their impact:

• Missed or late payments – Big drop in score.
• New credit inquiries – Small drop raises red flags.
• Opened a new credit card – May raise utilization.
• Maxed out current cards – Can spike debt-to-income ratio.
• Co-signed for someone else – Adds new debt to your profile.
• Closed an old credit card – May lower credit age & increase usage.
• Errors or fraud on the report – Can hurt the score until it is fixed.

How Much of a Drop Is a Problem?

Here’s how different levels of score drops might affect you. 5–10 points are usually ok unless you are on the edge of qualifying. 20+ points may cause interest rate hikes or may cause extra conditions. 40+ points could lead to loan denial, especially if near the minimum limit.

Program Minimum Credit Score Requirements (2025)

• FHA – 580 (3.5% down) or 500 (10% down)
• VA – No official minimum, but 580–620 common
• USDA-640 recommended
• Conventional – 620 minimum
• Non-QM – 500–620+, depending on the lender

Remember that if your score drops below these levels, you might no longer qualify unless you switch loan types or work with a lender like Gustan Cho Associates, which offers manual underwriting or non-QM options.

Can You Still Close If Your Credit Score Drops?

Yes, you may still close if your new score is still above the program’s minimum, your debt-to-income ratio (DTI) hasn’t changed drastically, you haven’t missed any payments, and the lender only does a soft credit refresh. You may not close if you open new accounts, your score drops below the lender’s guidelines, you take on more debt, your DTI is too high, and you miss payments during the process.

Soft Pull vs. Hard Pull During Closing

Most lenders don’t do a hard credit pull again before closing, but they may do a “soft pull” or credit refresh. This won’t lower your score, but it can reveal new credit accounts, credit inquiries, and big changes to balances. If lenders see anything suspicious, they may delay closing until you explain it.

How to Prevent Credit Scores Drop During Mortgage Process?

Here are simple ways to protect your credit during the mortgage process. Follow these ways to avoid credit scores drop during mortgage process.

• DO:
  – Keep paying all your bills on time
  – Keep credit card balances low
  – Leave old accounts open
  – Respond quickly to your lender’s requests
• DON’T:
  – Apply for new credit
  – Co-sign a loan for someone else
  – Close any credit cards
  – Make large purchases on credit (like furniture or cars)

What to Do If Your Credit Scores Drop During Mortgage Process?

If your credit scores drop during mortgage process, don’t panic. Here’s what you can do. First, ask the lender if it affects your approval. Some lenders can still move forward, especially if the drop is small. Second is to check for errors. If something doesn’t look right, pull your own credit and dispute any errors. Ask about manual underwriting. Manual underwriting may allow you to qualify even with a low score as long as you can show timely rent payments and other compensating factors. Lastly, switch loan programs. If one loan type won’t work, another might. FHA, non-QM, or VA loans may be more flexible.

How Do Lenders Use Credit Scores

The credit score a lender will use to qualify is the middle of the three scores. For example, if the borrower has a 600 FICO Transunion Credit Score, 650 FICO Experian Credit Score, and 700 FICO Equifax Credit Score, the middle score is the 650 FICO credit score. This middle credit score will be used for qualifying purposes. If a borrower needs a conventional loan, this borrower will qualify for a conventional loan because the 650 FICO credit score he has is higher than the minimum 620 FICO credit score required to qualify for a conventional loan.

If there is a co-borrower on the mortgage loan application or a non-occupant co-borrower, then the lower of the two borrower’s middle credit scores will be used to qualify for the mortgage loan.

For example, let’s say that the above borrower has a non-occupant co-borrower and the co-borrowers middle credit score is 600 FICO. The borrower’s middle credit scores are 650 FICO and the co-borrowers middle credit scores are 600 FICO. Since the co-borrower has the lower of the two borrower’s credit scores, the 600 FICO credit score will be used to qualify for the mortgage loan. Under these circumstances, the borrowers will not qualify for a conventional loan since the 600 FICO credit scores will be used to qualify. For these borrowers to qualify for a home loan, they would have to go with an FHA loan since the minimum credit scores required on an FHA loan is 580 FICO.

What Happens If Credit Scores Drop During Mortgage Process

The credit scores that will be used throughout the mortgage process is the initial credit scores submitted with the mortgage loan application. Credit scores fluctuate up and down during the mortgage application and mortgage approval process and mortgage lenders realize this.

Mortgage underwriters will do soft pulls on the mortgage loan applicant’s credit during the mortgage application and approval process and will see that sometimes the borrower’s credit scores have dropped significantly or have increased.

The credit report and credit scores are good for 120 days so as long as the mortgage loan closes within the 120 days of when the credit report was first pulled, the mortgage loan borrower should have no issues. If for whatever reason the mortgage loan does not close in 120 days, then a new credit report needs to be pulled and the new credit scores at the time of the new credit check will be used.

How Gustan Cho Associates Can Help

Gustan Cho Associates are professionals helping borrowers get approved even if their credit drops, they’ve been denied elsewhere, they have high DTI, and they’ve had recent late payments or collections. We offer no lender overlays, manual underwriting, and non-QM loans for those who don’t fit the box. We are experts in scenarios like credit scores drop during mortgage process.

Frequently Asked Questions (FAQs): What Happens If Credit Scores Drop During Mortgage Process

1. Will my lender know if my score drops after pre-approval?

Yes. Most lenders do a credit check or refresh before closing.

2. Can a dropped score cancel my mortgage?

Yes, if your new score exceeds the loan’s minimum requirement or your DTI becomes too high.

3. Will my interest rate go up if my score drops?

Possibly. A lower score can trigger pricing adjustments that raise your rate or fees.

4. Should I apply for a new credit card while in the mortgage process?

No. Applying for or opening new credit can lower your score and delay or kill your loan.

5. What if the drop was due to a credit report error?

Tell your lender right away and dispute the error. You might still close with lender flexibility.

6. Does paying off debt during the process help?

Yes but do it early. Sudden changes during underwriting can raise red flags.

7. Can I switch lenders if my credit drops?

Yes. If your current lender can’t approve you, another one might especially a non-QM or FHA manual underwrite lender.

8. How fast can I fix my score?

Paying down credit cards can raise your score in 30 days or less. But late payments take longer to fix.

9. Can I close a loan with a 580 credit score?

Yes with FHA or a flexible lender like Gustan Cho Associates.

10. Should I tell my loan officer if something changes?

Yes always communicate. Hiding it could delay or kill your loan.

Worried about your credit score during your home loan process? Or you have other questions about credit scores drop during mortgage process? We’ve helped thousands get approved even after their scores dropped. Call us now. We are available 24/7.