Does Pre-Approval Affect Your Credit Score?

Pre-approval in the context of credit, such as for mortgages, auto loans, or credit cards, indicates that a lender has conducted an initial review of your financial standing and determined you likely meet certain criteria for a credit product. This preliminary assessment helps individuals understand what they might qualify for before committing to a full application. This article clarifies how pre-approvals interact with credit scores and the distinct types of credit inquiries involved.

Types of Credit Inquiries

Understanding the different ways lenders and other entities can access your credit information is important. Credit inquiries generally fall into two main categories: soft inquiries and hard inquiries. Each type has a distinct impact on your credit report and score.

Soft inquiries, also known as soft pulls or soft credit checks, occur when someone checks your credit report without a specific application for new credit. Common scenarios include checking your own credit, pre-screened offers for credit cards or loans, or background checks by employers or insurance companies. Soft inquiries are typically not visible to other lenders and do not affect your credit score. They may appear on your personal credit report, but generally only you can see them.

Hard inquiries, also referred to as hard pulls or hard credit checks, happen when you formally apply for new credit, such as a credit card, mortgage, or auto loan. When you authorize a lender to review your creditworthiness, a hard inquiry is recorded on your credit report. These inquiries are visible to other lenders and can influence your credit score. They indicate you are actively seeking new credit.

How Pre-Approvals Work

Most pre-approvals typically involve a soft inquiry, which means a lender assesses your general creditworthiness without affecting your credit score. This process allows lenders to determine if you meet their basic eligibility requirements and to offer preliminary terms for a credit product. For instance, a credit card company might send a pre-approved offer after reviewing your credit data through a soft inquiry.

During a pre-approval, the lender uses limited information, often based on basic financial details you provide and the results of the soft credit pull. This initial check gives both the lender and the potential borrower an indication of what credit products might be suitable. For example, a pre-approval for a personal loan helps determine eligibility before a formal application. A pre-approval does not guarantee final approval for credit; it is an indication of potential eligibility.

Credit Score Impact

Pre-approvals generally have no impact on your credit scores because they typically involve soft inquiries. Soft inquiries are not considered indicators of new credit-seeking behavior by credit scoring models. Therefore, they do not cause a drop in your score.

In contrast, hard inquiries can affect your credit score. A single hard inquiry typically causes a small, temporary drop, often less than five points on FICO Scores. The impact tends to be minimal and temporary, with scores often rebounding within a few months, assuming responsible credit behavior. Hard inquiries can remain on your credit report for up to two years, but they usually only affect your credit score for about 12 months. While one hard inquiry has limited effect, multiple hard inquiries in a short period can be viewed less favorably by scoring models, signaling increased risk. However, for specific types of loans like mortgages, auto loans, or student loans, multiple inquiries within a certain timeframe are often treated as a single inquiry to allow for rate shopping.

Distinguishing Pre-Approval from Application

Understanding the difference between a pre-approval and a full credit application is important for managing your credit. A pre-approval provides an estimate of what you might qualify for, often without affecting your credit score. It is a preliminary step based on a soft inquiry.

The transition to a full application occurs when you decide to proceed with the credit offer. At this stage, you typically provide more detailed financial information and formally consent to a comprehensive credit check. This full application triggers a hard inquiry, which is recorded on your credit report and can temporarily affect your credit score. While pre-approval offers insights into potential eligibility, the hard inquiry and its associated minor impact on your score happen during the formal application process, not the initial pre-approval.