Does Mortgage Pre Approval Hurt Credit Score?

Mortgage pre-approval is a step many prospective homeowners consider when preparing to purchase a property. This process involves a lender assessing an applicant’s financial standing to determine how much they might be eligible to borrow for a home loan. A frequent concern is whether this preliminary assessment could negatively impact their credit score. This article explores how mortgage pre-approval interacts with credit reports and scores.

Understanding Credit Inquiries

A credit inquiry refers to a request for an individual’s credit history information, recorded on their credit report. These inquiries are broadly categorized into two types: soft inquiries and hard inquiries. Soft inquiries occur when a person or company checks credit as part of a background review or for pre-qualified offers, often without direct permission. For example, checking one’s own credit score or receiving pre-approved credit card offers results in a soft inquiry. Soft inquiries generally do not affect credit scores.

In contrast, hard inquiries occur when a financial institution accesses a credit report to make a lending decision, such as for a new loan or credit card. These inquiries require authorization and are recorded on the credit report, visible to other lenders. Hard inquiries can cause a slight, temporary dip in a credit score. While they remain on a credit report for up to two years, their impact on the credit score usually lasts for a shorter period, often around one year.

The Pre-Approval Credit Check

Mortgage pre-approval involves a hard inquiry on an applicant’s credit report. Lenders conduct this review to assess financial risk and confirm eligibility for a home loan. This process allows the lender to examine the applicant’s credit history, current debt obligations, and payment behavior. The hard inquiry provides information needed to determine a potential loan amount and interest rate.

A single hard inquiry from a mortgage pre-approval might cause a minor, temporary reduction in a credit score. For most individuals, this impact is small, often less than five to ten points. The score usually recovers within a few months, especially if the individual maintains good credit habits like timely payments. While a pre-approval letter is not a final loan commitment, it signals to real estate agents and sellers that a buyer is serious and financially capable.

How Credit Models Treat Mortgage Shopping

Credit scoring models differentiate between multiple applications for various types of credit and several applications for the same type, such as a mortgage. These models, including FICO Score and VantageScore, incorporate a “rate shopping” rule. This rule acknowledges that consumers often compare offers from multiple lenders to secure the most favorable terms for a significant purchase like a home.

Under this rule, multiple hard inquiries for a mortgage within a specific timeframe are grouped and counted as a single inquiry for scoring purposes. The duration of this “shopping window” varies by scoring model. For FICO Scores, this period can range from 14 to 45 days, and some models ignore inquiries made 30 days prior to scoring. VantageScore models apply a 14-day window. This mechanism ensures that shopping for the best mortgage rate does not penalize a credit score beyond the initial, minor impact of the first inquiry.