Does Getting Pre-Approved for a Mortgage Hurt Your Credit?

Mortgage pre-approval often raises concerns about its potential impact on credit scores. This is an understandable worry, as credit scores play a significant role in financial applications. While a temporary, minor adjustment to your credit score can occur, the effects of mortgage pre-approval are generally manageable.

Credit Inquiries and Your Score

Understanding how credit inquiries function is fundamental to appreciating the impact of mortgage pre-approval. There are two primary types: soft inquiries and hard inquiries. Each type interacts with your credit score differently.

Soft inquiries occur when a person or company checks your credit report for informational purposes. Examples include checking your own credit score, receiving pre-approved credit card offers, or an employer conducting a background check. These inquiries are not tied to new credit applications and do not affect your credit score.

Hard inquiries occur when you formally apply for new credit, such as a mortgage, an auto loan, or a new credit card. Lenders perform these inquiries to assess your creditworthiness and repayment risk before extending credit. Hard inquiries appear on your credit report and can cause a small, temporary dip in your credit score. A single hard inquiry might lower a FICO Score by less than five points, and a VantageScore by five to ten points. While hard inquiries can remain on your credit report for up to two years, their impact on your credit score usually lessens over time and may only influence scoring models for about 12 months.

Mortgage Pre-Approval and Hard Inquiries

Mortgage pre-approval typically involves a hard inquiry. Lenders conduct a thorough review of your financial history to determine eligibility and the amount you can borrow. This process requires them to pull a full credit report. While this results in a hard inquiry, credit scoring models like FICO and VantageScore recognize that consumers often “rate shop” for the best mortgage terms.

To accommodate this shopping behavior, these models apply a special rule. Multiple hard inquiries for the same type of loan, such as a mortgage, within a specific timeframe are treated as a single inquiry for scoring purposes. For FICO Scores, this shopping window can range from 14 to 45 days, depending on the version of the scoring model used. VantageScore typically treats inquiries made within a 14-day rolling window as one inquiry. This rule allows prospective homebuyers to compare offers from several lenders without their credit score being negatively affected by each individual inquiry.

Pre-approval is a crucial step in the homebuying process. It provides a clear understanding of your borrowing capacity and demonstrates to sellers that you are a serious and qualified buyer. Despite the hard inquiry involved, the benefits of knowing your financial standing and strengthening your offer outweigh the minimal and temporary credit score impact.

Minimizing Credit Score Impact During Pre-Approval

To manage any potential impact on your credit score during the mortgage pre-approval process, timing your applications is important. Complete all mortgage pre-approval applications within the designated “rate shopping” window, which typically ranges from 14 to 45 days. Grouping these applications ensures they are treated as a single hard inquiry by credit scoring models, minimizing the overall effect on your score.

Before initiating the pre-approval process, check your own credit report and score. This allows you to identify inaccuracies or areas where your credit could be improved, without impacting your score, as checking your own credit is a soft inquiry. Addressing any discrepancies beforehand can help optimize your credit profile for lenders.

During mortgage pre-approval and the home-buying journey, avoid applying for other new lines of credit. Applications for credit cards, personal loans, or auto loans result in separate hard inquiries not grouped under the mortgage rate shopping rule, potentially leading to additional score reductions. Maintaining responsible credit habits, such as paying bills on time and keeping credit utilization low, remains important.

The Bigger Picture for Your Credit Score

Credit inquiries are a component of your credit score, but their influence is relatively minor compared to other factors. Payment history holds the most significant weight in credit score calculations, accounting for 35% of a FICO Score and up to 40% of a VantageScore. Consistently making on-time payments demonstrates financial reliability and is important for maintaining a healthy credit score.

Credit utilization, the amount of revolving credit used compared to total available credit, is another influential factor. This category typically accounts for 30% of a FICO Score and between 20% to 30% of a VantageScore. Maintaining a low credit utilization ratio, generally below 30%, is advised to positively impact your score.

The length of your credit history and the mix of credit types you manage also contribute to your score, though to a lesser extent. Hard inquiries, in contrast, typically constitute about 10% of a FICO Score and around 5-11% of a VantageScore. Focusing on fundamental credit management practices, such as timely payments and low credit utilization, will have a greater and longer-lasting positive effect on your credit health than any temporary dip from mortgage pre-approval inquiries.