By Sam Wax
You’ll think the buying process is going smoothly, and in the blink of an eye, something changes. Your credit score, which was in great standing, has suddenly fallen after the pre-approval.
You’re not alone if this has happened to you. The good news is that most mid-transaction score drops are preventable, and many are fixable faster than you might think.
What Causes a Credit Score to Drop During a Transaction?
Understanding the cause is the first step toward fixing it. There are four common culprits.
1. Applying for New Credit
After a buyer gets pre-approved, the first thing they want to do is shop. This includes actions such as opening a new credit card, financing furniture, or applying for a car loan while the mortgage process is still underway. Many of these activities trigger a hard inquiry on your credit report. While a hard pull will not typically ruin your score (the average costs fewer than 5 points), the aftereffects are drastic. For instance, a new line of credit will reduce your average account age and add to your untested credit, which, when combined, can cost up to 30 points. The rule is simple: do not apply for any new credit between pre-approval and closing.
2. Missed or Late Payments
Payment history drives 35% of your FICO score, making it the most consequential factor of all. A single 30-day late payment can significantly drop your score. A forgotten autopay or a bill that slipped through the cracks during a hectic closing period can do serious damage. Set up autopay on every account and check your balances regularly until you have the keys in hand.
3. High Credit Utilization
Credit utilization factors in how much credit card debt is on your books, and accounts for roughly 30% of your score, while also being the most volatile factor. Running up a credit card balance during the transaction can quickly cost 10 to 30 points, and maxing out a card can cause a drop of 100 points or more. Keep every card below 30% of its limit, which is the standard line.
4. Reporting Errors
This version usually leads to bigger problems, so you must catch it fast. Things like:
- Credit report errors
- Identity theft
- Closure of an account
- Inaccurate late payment
You’ll need to dispute these charges with the three main credit bureaus: Equifax, Experian, and TransUnion.
Rapid Rescore: The Fast Fix Most Buyers Don’t Know About
If your score drops mid-transaction, you may not have to wait weeks for your credit report to catch up. Your loan originator can initiate a process called rapid rescoring.
You must complete the following steps:
- Take corrective action (such as paying down a high credit card balance or obtaining a letter from a creditor correcting an error)
- Gather documentation proving the change
- Your lender will submit it directly to the credit bureaus for fast-tracked verification.
Only lenders can initiate this, and some will cover the cost on your behalf.
Rapid rescoring works best when you’re a few points shy of a key threshold and can address a clear, fixable issue. Paying down high balances is the most effective scenario, and may qualify you to recover 50 points or more, depending on your situation. Keep in mind that it cannot remove accurate negative items like legitimate late payments or collections.
What My Easy Mortgage Does When a Score Drops
A mid-transaction credit score drop puts a My Easy Mortgage broker’s experience and relationships to the test. Here are the steps we take in this scenario:
- Run a credit simulation before taking any action. We’ll point out the best step to take in raising your credit score quickly, whether that’s paying down a specific card, disputing a particular item, or paying off debt. This avoids wasted time and ensures the fastest path to score recovery.
- Initiate rapid rescoring immediately. Once we’ve identified the cause and taken corrective action, a rapid rescore is submitted.
- Evaluate alternative loan products in parallel. While rescoring is underway, we’ll see whether any other loan options make sense for you and your new credit score, helping you keep that dream house.
- Monitor the pipeline proactively, not reactively. We don’t wait for a problem to surface at the final credit pull; we focus on proactive solutions.
My Easy Mortgage is an expert at handling challenges, including what happens when your credit score tanks mid-loan. Contact Sam Wax with questions about credit.
Whether you are a first-time buyer or looking to refinance, My Easy Mortgage, a reputable mortgage broker located at 2405 Creel Lane, STE 102, Wesley Chapel, FL 33544, and 16703 Early Riser Ave, Suite 266, Land O’Lakes, FL 34638, has a team of experienced professionals who can guide you through the process. Contact them at (813) 513-9846 to discuss your mortgage needs.
