How Much Does a Mortgage Pre-Approval Hurt Your Credit?

Mortgage pre-approval is an important step for home buyers. It involves a lender reviewing your finances to determine how much money you may be able to borrow. This process provides a clear budget for your home search and demonstrates to real estate agents and sellers that you are a serious and qualified buyer. Understanding its interaction with your credit is important for homeownership.

The Pre-Approval Process and Credit Checks

The mortgage pre-approval process requires lenders to assess your financial health. Lenders examine your credit history, income, existing debts, and assets to determine your creditworthiness and the maximum loan amount you might qualify for.

A “hard inquiry” credit check is a component of this assessment. Unlike a “soft inquiry,” which might occur when you check your own credit and does not affect your credit score, a hard inquiry happens when you formally apply for credit. When you apply for mortgage pre-approval, the lender performs a hard inquiry, recorded on your credit report, to obtain a detailed picture of your payment history, outstanding balances, and credit utilization from the major credit bureaus.

Impact on Your Credit Score

A hard inquiry can lead to a slight, temporary decrease in your credit score. Typically, this reduction is minimal, often ranging from zero to five points. The exact impact can vary based on your individual credit history; someone with a long and robust credit history might experience a lesser effect than someone with a shorter or less established credit file.

While a hard inquiry remains on your credit report for up to two years, its influence on your credit score usually diminishes much sooner. Most credit scoring models only consider inquiries from the most recent 12 months, and the impact on your score often lessens significantly within a few months. This temporary dip is generally not a significant barrier to obtaining a mortgage, especially if your overall credit profile is strong.

Strategies for Managing Credit During Pre-Approval

To mitigate the credit score impact during pre-approval, consumers can employ several strategies. A primary strategy involves understanding the “rate shopping window.” Credit scoring models, such as FICO and VantageScore, treat multiple hard inquiries for the same type of loan, like a mortgage, within a specific timeframe as a single inquiry. This window typically ranges from 14 to 45 days for FICO scores and is often 14 days for VantageScore.

Complete all your mortgage pre-approval inquiries within this designated shopping window to minimize the cumulative impact on your score. Maintain responsible credit habits throughout the home-buying process. Avoid applying for any new lines of credit, like credit cards or car loans, as these can trigger additional hard inquiries and alter your debt-to-income ratio, which lenders closely monitor. Consistently making all your payments on time and keeping existing credit accounts open, even if they have a zero balance, helps maintain a healthy credit utilization ratio and a longer credit history.