Does Getting a Mortgage Pre-Approval Hurt Your Credit?

A common concern for individuals considering a mortgage pre-approval is the potential impact on their credit score. While a mortgage pre-approval involves a credit check, any effect on your credit score is minimal and temporary. The advantages of obtaining a pre-approval, such as understanding your purchasing power and presenting as a serious buyer, often outweigh this minor credit score adjustment. This process helps set a realistic home buying budget and makes offers more competitive.

Understanding Credit Inquiries

Credit inquiries record who has accessed your credit report. There are two primary types: soft inquiries and hard inquiries, each with different implications for your credit score.

Soft inquiries occur when a person or company checks your credit report without you applying for new credit. Examples include checking your own credit score, employer background checks, or insurance reviews. These inquiries are not visible to lenders and do not affect your credit score.

Conversely, hard inquiries happen when you apply for new credit, such as a credit card, auto loan, or mortgage. Lenders perform hard inquiries to assess your creditworthiness before extending credit. Each hard inquiry results in a small, temporary decrease in your credit score, usually a few points. Hard inquiries remain on your credit report for up to two years, though their impact on your credit score lessens after 12 months.

The Mortgage Pre-Approval Process

A mortgage pre-approval represents a conditional commitment from a lender to provide a specific loan amount, based on a thorough review of your financial information. This process is a significant step in home buying, demonstrating to sellers that you are a qualified and serious buyer. It clarifies your borrowing capacity and the interest rate you might expect.

To obtain a mortgage pre-approval, you provide the lender with financial documents, including income statements, asset information, and debt obligations. The lender then conducts a comprehensive review of these documents, which includes a hard inquiry into your credit report.

This hard inquiry allows the lender to accurately assess your credit risk and determine the maximum loan amount they will offer. While some confuse pre-approval with pre-qualification, there is a clear difference. Pre-qualification is a less formal estimate, often based on self-reported information, and may involve only a soft inquiry or no credit check, carrying less weight with sellers. Pre-approval involves a more in-depth analysis and a hard inquiry, providing a more reliable assessment of your borrowing power.

Impact on Credit Scores

Credit scoring models, such as FICO and VantageScore, account for consumers shopping for mortgage rates. While a hard inquiry can cause a minor, temporary dip of around 3 to 5 points, these models minimize the negative effect of multiple inquiries for the same loan type. This incorporates a “rate shopping window,” a timeframe during which multiple mortgage inquiries are treated as a single inquiry for scoring purposes.

For instance, FICO scores group multiple mortgage inquiries made within a 14- to 45-day window as a single inquiry. VantageScore models apply a 14-day window for this purpose. This mechanism allows you to compare loan offers from various lenders without significant cumulative impact on your credit score.

The temporary nature of a hard inquiry’s impact means your score recovers quickly, often within a few months, provided you maintain timely payments and responsible credit habits. Factors like payment history and credit utilization carry more weight in credit score calculations than inquiries, making them more influential on your overall credit health. The minor effect of a mortgage pre-approval inquiry is a small consideration compared to the broader aspects of your credit profile.