Does Mortgage Pre-Approval Affect Credit Score?

Mortgage pre-approval is a common step for individuals looking to purchase a home, providing an estimate of how much a lender might be willing to lend. This process helps potential buyers understand their borrowing capacity before seriously searching for properties. A frequent concern is its potential effect on their credit score, a factor that influences future financial agreements. Understanding this impact is important for navigating the home-buying journey.

Understanding Credit Inquiries

When a financial institution requests to review your credit report, it’s recorded as a credit inquiry. There are two main types: soft inquiries, also known as soft pulls, and hard inquiries. Soft inquiries occur when your credit report is checked without you formally applying for new credit. These typically happen when you check your own credit score or when lenders pre-qualify you for promotional offers. Soft inquiries do not impact your credit score.

Hard inquiries, or hard pulls, occur when you apply for new credit, such as a loan or a credit card, and the lender accesses your credit file to assess your creditworthiness. These inquiries can cause a small, temporary dip in your credit score. While a hard inquiry remains on your credit report for up to two years, its effect on your credit score diminishes after a few months and typically does not impact your score after 12 months.

The Impact of Mortgage Pre-Approval on Your Credit Score

Mortgage pre-approval involves a hard inquiry on your credit report. This comprehensive review is necessary because lenders need a detailed understanding of your financial history and current obligations to determine the maximum loan amount you might qualify for. This process is more in-depth than a pre-qualification, which often relies on self-reported information and may involve only a soft pull or no credit check.

The impact of a hard inquiry from a mortgage pre-approval is minimal and temporary. Your credit score may see a small reduction, often by just a few points, such as less than five points for most people. While this dip is noted, scores tend to recover quickly, within a few months, especially with continued responsible credit behavior like timely bill payments and maintaining low credit card balances. This temporary reduction is considered a minor trade-off for the benefit of having a clear understanding of your borrowing capacity and presenting a stronger offer to home sellers.

Managing Multiple Mortgage Inquiries

When shopping for a mortgage, it is common and advisable to compare offers from multiple lenders to secure the most favorable terms. Credit scoring models are designed to recognize this behavior, often referred to as “rate shopping.” To accommodate this, multiple hard inquiries for the same type of loan, such as a mortgage, within a specific timeframe are treated as a single inquiry.

This “rate shopping” window can vary depending on the credit scoring model used, but it commonly ranges from 14 to 45 days. If you apply for multiple mortgage pre-approvals within this designated period, all those inquiries will count as one for scoring purposes, minimizing the cumulative impact on your credit score. This rule encourages consumers to shop around for the best rates without undue concern about credit score damage from multiple checks.