Does Getting a Pre-Approval Hurt Your Credit?

When considering a significant financial commitment, such as purchasing a home or a vehicle, many individuals explore loan options through a process called pre-approval. This initial step helps borrowers understand their borrowing capacity before making concrete plans. A common concern is whether seeking a pre-approval might negatively affect one’s credit score. This article clarifies how pre-approvals interact with credit scores.

Understanding Pre-Approval

Pre-approval represents a preliminary, non-binding assessment by a lender regarding the amount of money they might be willing to lend to you. It serves as an estimate, providing a clear picture of your potential purchasing power before you commit to a specific item like a house or car. For borrowers, pre-approval helps in setting a realistic budget and understanding affordability, which can streamline the subsequent application process.

From the lender’s perspective, pre-approval involves a quick check of basic eligibility without undergoing a full underwriting process. Lenders typically request information such as your income, general debt levels, and some basic credit details provided by you. This initial review allows them to gauge your financial standing and offer an estimated loan amount and interest rate. A pre-approval is not a guaranteed loan; it is an indication of what you might qualify for.

Soft Inquiries Versus Hard Inquiries

Understanding how lenders access your credit information is important for comprehending the impact on your credit score. There are two primary types of credit checks: soft inquiries and hard inquiries. Each type carries a different implication for your credit profile.

A soft inquiry, sometimes referred to as a “soft pull” or “soft check,” occurs when your credit is reviewed without directly affecting your credit score. These inquiries often happen when you check your own credit score or when companies pre-screen you for promotional offers. Lenders may also perform a soft inquiry for pre-approvals or pre-qualifications. Soft inquiries are not visible to other lenders reviewing your credit report.

In contrast, a hard inquiry, also known as a “hard pull” or “hard check,” occurs when you formally apply for new credit. This includes applications for mortgages, auto loans, credit cards, or other lines of credit. A hard inquiry indicates to other lenders that you are actively seeking new credit, which can slightly and temporarily impact your credit score. These inquiries remain on your credit report for up to two years, though their effect on your score diminishes after 12 months.

Credit Score Impact

Getting a pre-approval does not harm your credit score because it involves a soft inquiry. Lenders conducting pre-approvals perform a preliminary check to determine your creditworthiness, rather than a full underwriting process that would necessitate a hard inquiry. This means you can explore your borrowing options without immediate concern for a negative impact on your credit.

A hard inquiry, which can cause a small, temporary dip in your credit score, occurs when you proceed with a full, formal loan application. For most individuals, a single hard inquiry might result in a score reduction of five points or less. The impact is minimal and temporary, with scores recovering within a few months if other credit behaviors remain positive.

When shopping for installment loans like mortgages or auto loans, multiple hard inquiries within a short timeframe are treated as a single inquiry by credit scoring models. FICO scoring models consolidate multiple inquiries for the same type of loan if they occur within a 14-day to 45-day window. This “rate shopping” provision allows consumers to compare loan offers from various lenders without their credit score being penalized for each individual inquiry.