Credit tips are crucial when you’re nearing the finish line when purchasing your home because it’s an exciting time, but even minor credit missteps can cause delays—or worse, result in your loan being denied.

Today, we’re diving deep into some essential credit tips you need to know before closing on your home loan. Following these tips can save you from unwanted surprises and ensure the loan process goes smoothly.

What to Avoid Before Closing on Your Home Loan

Even small changes to your credit can have significant effects when you’re in the final stages of homebuying. Let’s explore what you should not do before closing:

1. Avoid Multiple Credit Checks

Each credit inquiry can impact your score, typically lowering it by 1 to 3 points. While this might seem minor, it could affect your loan terms or even your approval. Resist the urge to shop around or apply for credit cards and loans—you don’t want your score dipping at this critical stage.

2. Don’t Apply for New Credit Within 45 Days of Signing a Contract

Opening new credit accounts can drastically change your credit profile and debt-to-income ratio. Even small or seemingly insignificant new debts require documentation, which can complicate or delay your approval process. Hold off on any new credit applications until after closing.

3. No Shopping Sprees for Furniture or Cars

It’s tempting to start planning for your new home with some shopping, but resist the urge until after closing. Large purchases, especially on credit, can shift your financial picture, potentially disqualifying you from the loan. Always check with your lender before making big purchases during this period.

4. Don’t Max Out Your Credit Cards or Go on Spending Sprees

Getting excited about furnishing your new home is natural, but doing so before closing could backfire. High credit utilization increases your debt-to-income ratio and can lower your credit score, putting your loan approval at risk. Keep your spending under control until you have the keys in hand.

Essential Tips to Keep Your Credit in Good Shape Before Closing

Now that we’ve covered what not to do, let’s shift gears and discuss what you should do to maintain your credit health as you approach closing day.

1. File Your Tax Returns and Extensions

Your lender needs the most up-to-date financial information to assess your situation accurately. Filing your tax returns or necessary extensions ensures they have the correct data for a smooth underwriting process.

2. Explain and Document Credit Inquiries

If there are inquiries on your credit report, be transparent and document them. Your lender will need to know if you’ve opened any new credit accounts. Providing clear information allows them to better understand your credit history and prevents unnecessary delays.

3. Disclose All Debts, Even Those Not on Your Credit Report

Honesty is crucial. Any undisclosed debts will eventually come to light and could cause severe issues during the final loan review. It’s better to disclose everything upfront so your lender can address any potential problems early.

4. Work with a Knowledgeable Lender

A knowledgeable lender is your best ally during this process. They can guide you through the dos and don’ts, helping you avoid common pitfalls that could jeopardize your loan approval. Lean on their expertise for advice tailored to your unique financial situation.

Final Thoughts: Keep Your Credit Stable

By following these dos and don’ts, you can avoid last-minute hiccups and ensure your home-buying journey goes as planned. The ultimate goal is to keep your credit stable and avoid any red flags that might concern lenders.

If you found these tips helpful, don’t forget to like this post, subscribe for more content, and drop a comment below. And if you have questions, don’t hesitate to ask. For personalized advice, feel free to book an appointment with our team.

FAQ: Credit Tips Before Closing on Your Home Loan

1. How can multiple credit checks affect my loan approval?

Every time your credit is pulled, your score can drop by 1 to 3 points. While a single inquiry might have a minimal impact, multiple inquiries can lower your score enough to affect your loan terms or even disqualify you from approval. It’s best to avoid allowing any unnecessary credit checks during the home-buying process.

2. Why should I avoid applying for new credit before closing?

New credit accounts can change your debt-to-income ratio and overall credit profile. Even small new debts can complicate the approval process and require additional documentation, which may delay or impact your loan approval.

3. Is it okay to buy furniture or a car before I close on my home?

It’s highly recommended to wait until after closing. Large purchases can alter your financial picture and may prevent you from qualifying for your loan. Always check with your lender before making any significant financial decisions during this period.

4. How does using my credit card for large purchases affect my credit score?

Using your credit card to make large purchases increases your credit utilization ratio, which can lower your credit score. A higher utilization ratio signals to lenders that you are carrying more debt, which could affect your ability to secure favorable loan terms.

5. Why do I need to file my tax returns before closing on a loan?

Lenders require the most recent financial information to accurately assess your ability to repay the loan. Filing your tax returns or necessary extensions ensures they have the correct and up-to-date data, reducing the risk of delays in the approval process.

6. What should I do if there are inquiries on my credit report?

You should document and explain all credit inquiries to your lender. They need to verify whether these inquiries resulted in new credit accounts. Being transparent allows your lender to understand your credit history and prevents any unexpected issues during the loan review.

7. Do I need to disclose all debts, even those not on my credit report?

Yes, you should disclose all debts, including those that may not appear on your credit report. Hidden debts can cause major complications during the final loan review. Being upfront about your financial situation allows your lender to manage and address any issues proactively.

8. How can a knowledgeable lender help during this process?

Working with an experienced lender can help you avoid common pitfalls that might jeopardize your loan approval. They can guide you through the dos and don’ts, provide personalized advice, and ensure that you’re well-prepared for a smooth closing process.

9. What’s the best way to keep my credit stable before closing?

The key is to avoid making significant financial changes. Don’t apply for new credit, limit credit inquiries, avoid large purchases, and keep your credit card balances low. Stick to these principles, and you’ll keep your credit stable, reducing the risk of complications before closing.

10. What should I do if I have more questions about maintaining my credit before closing?

Feel free to reach out for personalized advice! Whether you have specific questions or need help navigating your unique financial situation, our team is here to guide you.