Does Getting Pre-Approval for a Home Loan Affect Credit?

A home loan pre-approval is an initial lender assessment indicating how much you might borrow for a home. It is a common and recommended step in the home-buying process, providing clarity on your potential budget. While pre-approval involves reviewing your financial standing and credit history, its specific impact on your credit score is often misunderstood.

Pre-Approval Versus Pre-Qualification

“Pre-approval” and “pre-qualification” are sometimes used interchangeably, but they represent distinct stages in the mortgage process with different levels of lender scrutiny. Pre-qualification is a less formal, preliminary step based on self-reported financial information. Lenders use this information to give you an estimated borrowing amount, often involving a “soft inquiry” that does not impact your credit score.

Pre-approval is a more thorough evaluation, providing a conditional commitment from a lender for a specific loan amount. This process requires submitting documentation for verification, such as pay stubs, W-2 forms, tax returns, and bank statements. Pre-approval almost always involves a “hard inquiry” into your credit history, strengthening your position as a serious buyer.

The Mechanics of Credit Inquiries

When a lender accesses your credit information, it results in a credit inquiry, which can be categorized into soft and hard inquiries. A soft inquiry, sometimes called a “soft pull,” occurs when credit is checked for informational purposes without a formal application for new credit. Examples include checking your own credit score, pre-screened offers, or background checks. These inquiries do not affect your credit score.

A hard inquiry, or “hard pull,” happens when you formally apply for new credit, such as a mortgage, car loan, or credit card. This type of inquiry indicates you are actively seeking new debt, and lenders use it to assess creditworthiness. Hard inquiries are recorded on your credit report and can remain for up to two years, though their impact diminishes after 12 months.

Impact on Your Credit Score

A hard inquiry from a mortgage pre-approval can affect your credit score, though the impact is minor and temporary. A single hard inquiry may result in a decrease of fewer than five points on FICO Scores, sometimes between zero and three points. This minimal adjustment reflects that credit scoring models recognize the necessity of shopping for favorable loan terms.

Credit scoring models, such as FICO and VantageScore, account for “rate shopping” behavior for mortgage, auto, or student loans. These models treat multiple inquiries for the same loan type within a specific timeframe as a single inquiry. This shopping window ranges from 14 to 45 days, depending on the scoring model. This allows consumers to compare loan offers without incurring multiple credit score penalties.

Minimizing Credit Score Impact

To minimize the impact of a home loan pre-approval on your credit score, complete all mortgage applications within the designated rate shopping window. This window, between 14 and 45 days, ensures multiple inquiries for the same mortgage are grouped as a single event, limiting the cumulative effect.

Avoiding new credit applications during the home-buying process is a sound practice. Applying for other credit, like new credit cards or car loans, can lead to additional hard inquiries not subject to the rate shopping rule, potentially lowering your score. Before seeking pre-approval, check your credit report for errors; this is a soft inquiry and does not affect your score. Disputing inaccuracies can optimize your credit profile. Maintaining good credit habits, such as paying bills on time and keeping credit utilization low, supports a strong credit score.