Do Mortgage Pre-Approvals Hurt Your Credit Score?

A mortgage pre-approval involves a lender reviewing a borrower’s financial profile to determine the amount they are eligible to borrow. Homebuyers often wonder how this step might influence their credit score, a significant factor in securing favorable loan terms. Understanding credit inquiries and their treatment in mortgage applications is key for navigating the home-buying journey.

What a Mortgage Pre-Approval Involves

Obtaining a mortgage pre-approval is a financial assessment by a lender. The lender requests income, assets, and employment history. This includes documents like pay stubs, W-2 forms, and bank statements to verify financial stability.

A credit check is a standard part of this evaluation. Pre-approval determines a borrower’s capacity to repay a loan and the maximum loan amount they qualify for. For the borrower, it provides a clear understanding of their affordable price range, streamlining their home search and demonstrating seriousness to sellers. A pre-approval letter, with an expiration date of 60 to 90 days, signals to sellers that a buyer is likely to secure financing.

How Credit Inquiries Affect Your Score

Credit inquiries are requests to view a credit report, categorized as soft or hard. A soft inquiry occurs when someone checks their own report, or a company reviews credit for promotional offers or background checks. These inquiries do not affect a credit score and are not visible to other lenders. Examples include checking a personal credit score or receiving pre-approved credit card offers.

In contrast, a hard inquiry happens when a lender accesses a credit report for a new credit application, such as a credit card, auto loan, or mortgage. Hard inquiries can result in a small, temporary dip in a credit score, typically by less than five points. While hard inquiries remain on a credit report for up to two years, their impact usually diminishes after a few months. A large number of hard inquiries in a short period can indicate a higher risk to lenders.

The Special Rules for Mortgage Inquiries

Mortgage inquiries are treated with special consideration by credit scoring models like FICO and VantageScore, a concept known as “deduplication.” These models recognize that consumers apply to multiple lenders to compare rates for a single loan. To avoid penalizing consumers for this comparison shopping, multiple hard inquiries for the same loan type within a specific timeframe are counted as a single inquiry for scoring purposes.

This concentrated shopping period can range from 14 to 45 days, depending on the scoring model. FICO Score versions treat inquiries within a 45-day window as one event, while VantageScore models use a 14-day rolling window. While each inquiry may still appear individually on a credit report, the algorithm consolidates them, minimizing the impact on the credit score. This rule allows consumers to seek favorable mortgage terms without significant credit score penalties.

Strategies to Protect Your Credit Score

Individuals can minimize negative effects on their credit score during mortgage pre-approval. One strategy involves completing all mortgage rate shopping within a concentrated timeframe, typically 14 to 45 days, to benefit from deduplication rules. This ensures multiple inquiries are treated as a single event, limiting the overall impact on the credit score.

Before applying for pre-approval, check credit reports for inaccuracies or errors and dispute them. Regularly monitoring credit reports helps identify and address issues that might negatively affect a score. Good credit habits, such as paying bills on time and maintaining low credit utilization, are important for a healthy credit score. These practices contribute more to a strong credit profile than the minor, temporary effects of mortgage inquiries.