Important takeouts:
Pre-approval of a mortgage includes rigorous credit checks that can cause a slight drop in your score. This effect is usually small (less than 5 points), temporary. Multiple previous apps in a window of 14-45 days are counted as one inquiry for scoring purposes. Being strategic in timing can help you compare prices without discrediting.
When you’re preparing to buy a home, one of the first steps you probably take is to get approved in advance for a mortgage. But if you’re wondering, “Does pre-approval affect my credit score?”, you’re not alone. Whether you’re checking out a home for sale in Denver, Colorado or preparing to make an offer in Raleigh, North Carolina, it’s important to understand how pre-approval fits your HomeBBB journey.
This Redfin article breaks down how the pre-approval process works, how it affects your credits, and what you can do to protect your score while showing serious sellers.
What is pre-approval for a mortgage?
A pre-approval of a mortgage is a written estimate of how much your lender will not lend you to you to buy the home. This is based on a thorough review of your finances, including income, debt, and credit history, and usually includes a rigorous credit check.
Unlike prequalification, which is a quick estimate based on self-report information and soft credit pull, prequalification is more formal. Sellers often require a pre-approval letter before accepting the offer to show you that you are a financially viable buyer.
>> Read: Before Approval and Prequalification
How does pre-approval affect your credit score?
Yes, pre-approval of a mortgage can affect your credit score, but it usually only takes a few points. How does this work:
Strict Enquiries: When a lender has withdrawn your credit and checks your financial profile during pre-approval, it is considered a difficult enquiry. Small impact: Single harsh enquiries usually reduce your credit score to less than 5 points, depending on your credit history. Short-term benefits: This dip is usually temporary. As long as you keep paying your bills on time and avoid taking on new debts, your score should bounce back immediately.
Will multiple pre-approvals hurt your credit more?
That’s not necessarily the case. Thanks to how the credit scoring model handles mortgage inquiries, it can be applied to multiple lenders without significantly damaging your credit score.
Both FICO and VantagesCore, two major credit scoring systems, understand that consumers need to shop when they take out major loans, such as mortgages. To illustrate this, when calculating the score, we group multiple mortgage-related hard surveys into one event within a particular window.
FICO: Group all mortgage-related inquiries made in one inquiry within a 45-day window. VantagesCore: Uses 14-day windows for rate shopping.
This means that if you apply to three different lenders within that rate shopping period, you will be counted as one inquiry for scoring purposes. However, all inquiries will continue to appear on your credit report.
Tip: To minimize the impact of your credit score while shopping at the best mortgage rates:
Submit all applications within 14-45 days, depending on the scoring model used by the lender. Pay your lender ahead and see if you want to perform a hard or soft credit pull. During this period, do not apply for any other forms of credit (such as credit cards or car loans).
Being strategic in timing will help you get the best deal without unnecessary damage to your credit score.
>>Read: How long will mortgage pre-approval last?
Hard vs Soft Credit Pull: What’s the difference?
What kind of credit survey is used to influence your credit score? Hard Enquiries Mortgage Pre-Acceptance, Credit Cards, Auto Loans Yes, Temporary Soft Enquiries Pre-Qualification, Background Checks, Promotions Will Not Affect
If you are unsure whether your lender will perform a hard or soft pull, feel free to ask.
How to protect your credit during the mortgage process
Below are some tips to keep your credit in good condition while being approved in advance.
Avoid applying for new credit cards or loans. I’ll continue to pay on time. Do not maximize your existing credit limits. Limit pre-approval applications to one rate shopping window.
These steps will help you move forward with your home buying plan while maintaining a strong credit score.
Should I worry about the impact of credits?
Being approved in advance is an important and necessary step to buying a home. It can cause a slight drop in your credit score, but profits far outweigh the risk, especially when it helps to stand out against sellers in highly competitive markets.
Once approved in advance, the next step is to choose the loan that suits your needs. Check out our guide on the types of home loans. How to choose the right mortgage to explore options.
