Does Pre-Approval Do a Hard Pull on Your Credit?
Clarify how pre-approval affects your credit. Understand the nuances of credit checks and their impact during the lending process.
When seeking new credit, such as a mortgage, auto loan, or personal loan, a common consideration during this process is how inquiries into one’s financial history might influence their credit standing.
Understanding Credit Inquiries
Credit inquiries are generally categorized into two types: soft inquiries and hard inquiries. Soft inquiries occur when a person or company checks a credit report without the intent of making a lending decision. This includes checking one’s own credit score through a credit monitoring service or when a lender pre-screens individuals for promotional offers. These inquiries typically do not affect credit scores as they are not tied to a new credit application.
In contrast, a hard inquiry, also known as a hard pull, happens when a lender formally requests a credit report to make a decision about extending credit. This type of inquiry requires the applicant’s explicit permission. Common scenarios include applying for a new credit card, a mortgage, an auto loan, or a personal loan. These inquiries can have a temporary, usually minor, impact on a credit score.
Pre-Qualification Versus Pre-Approval
The processes of pre-qualification and pre-approval represent different levels of assessment in the lending process. Pre-qualification is an initial step where a lender provides an estimate of how much a borrower might be able to borrow based on self-reported financial information. It typically involves a brief review of income, debts, and assets provided by the applicant. This process offers a general idea of borrowing capacity without extensive verification of financial documents.
Pre-approval, however, represents a more formal assessment of a borrower’s creditworthiness. Lenders typically require applicants to submit financial documentation, such as pay stubs, bank statements, and tax returns, for verification. The lender then conducts a thorough review of these documents and the applicant’s credit history. This process results in a more concrete offer of financing, often specifying the loan amount and potential interest rate, contingent on a final property or collateral appraisal.
The Impact of Pre-Approval on Credit
A pre-approval generally results in a hard credit inquiry. Lenders conduct a hard pull during this process to thoroughly assess an applicant’s creditworthiness. This review verifies provided information and helps offer accurate loan terms. The hard inquiry provides the lender with a complete picture of the applicant’s credit history, including payment history, outstanding debts, and credit utilization.
The impact of a single hard inquiry on a credit score is usually small, often just a few points, and temporary. Credit scoring models are designed to account for consumers shopping for the best rates. For instance, multiple hard inquiries for the same type of loan, such as a mortgage or auto loan, within a specific timeframe are frequently treated as a single inquiry. This timeframe can range from approximately 14 to 45 days, depending on the credit scoring model used. This “rate shopping” window helps mitigate the score impact for individuals seeking competitive offers from various lenders.
When Hard Inquiries Occur in the Lending Process
Hard inquiries are a recurring element throughout the lending journey, extending beyond the initial pre-approval. A hard pull is typically conducted at the onset of a formal loan application, enabling the lender to evaluate an applicant’s financial standing comprehensively. This initial check forms the basis for determining eligibility and potential loan terms. Further hard inquiries may occur if there are significant changes to the loan application or if the initial pre-approval expires, necessitating an updated credit review. If an applicant decides to switch lenders after an initial pre-approval, the new lender will also perform their own hard inquiry.