Solved: Could Mortgage Pre-Approval Hurt Your Credit Score?
Unless you are planning to pay all cash, mortgage pre-approval is an important step in the process of buying a home — no matter what type of financing you choose.
You may have heard that applying for a credit card can reduce your credit score, and you might wonder if applying for mortgage preapproval would do the same. It’s wise to protect your credit score when you’re considering a big purchase.
But there is good news: The impact of pre-approval on your credit score is small, and it’s well worth the benefits when you’re serious about buying a home.
What Exactly Is Pre-Approval?
Being pre-approved means a home financier has verified the amount of money they will finance for you.
When you fill out a mortgage pre-approval application, you provide documentation of information such as income, employment, and savings. The financier examines the buyer’s financial background —including credit score, income, and debts — to determine how much financing they’re willing to provide.
A financier will verify your application and give you a pre-approval letter stating the maximum amount of financing and the rate you may qualify for.
Does Getting Pre-Approved Hurt Your Credit?
Mortgage pre-approval can temporarily reduce your credit score by a few points, but there is no way around it in the homebuying process. If you were to somehow skip this step, your credit score would take a slight hit later when you find a house to buy and apply for financing. And you will need that preapproval letter to look for homes and to make an offer.
Pre-approval — and the hard credit inquiry that comes with it — is a necessary part of the process of applying for assistance with a large purchase.
The reason pre-approval affects your credit score is that, as part of the process, you are giving the mortgage lender or other financier permission to pull your credit scores and view your credit reports from the three main credit bureaus: Equifax, Experian, and TransUnion.
The financing provider needs to see that a potential customer is likely to be able to hold up his or her end of the deal, and credit can be an indicator. They are looking to see how well the prospective home buyer has managed the obligations he or she already has.
Hard vs. Soft Credit Check: What’s the Difference?
When a financier checks your credit as part of the preapproval process, there are two types of credit inquiries they could make: a soft credit inquiry or a hard credit one.
If you are not applying for credit but only for a rate quote, the inquiry is a soft one. Soft inquiries don’t affect your credit score.
If you are applying for credit or other financing, that is a hard inquiry (also known as a hard pull). A hard inquiry is recorded on your credit report and may temporarily affect your score because it is associated with new debt.
A pre-approval usually generates a hard credit inquiry.
What’s the Effect on My Credit Score?
How much difference does a hard inquiry make to your credit score? According to myFICO, the answer is generally less than five points.
The exact effect will differ according to the circumstances. Maintaining a good credit score can help you become eligible for special mortgage programs or financial assistance. If you have a short credit history or not many accounts, each new inquiry will affect your score more than if you have a long credit history and many accounts. Multiple hard inquiries — for example, if you apply for pre-approval over a long period of time with multiple financiers — could affect your score by more points.
Check out our tips on how to get your credit ready for a mortgage.
How Long Does the Effect Last?
The effect of a hard credit pull is temporary. According to myFICO, the inquiry is no longer factored into your FICO scores after one year and it will drop off your credit report entirely after two years.
Minimizing the Effect
There are ways to minimize the impact of a credit inquiry on your credit score:
- You can choose one financier to apply to for pre-approval rather than applying to multiple financiers.
- If you’d like to compare more than one offer, it helps to make all of your applications within a short time frame such as one month. In this way, it will be considered part of the same search rather than multiple different searches for financing. This lowers the impact when it’s factored into your score.
Keeping a Healthy Credit Score
The best way to minimize the impact is to keep your credit score healthy in general. Here are some ways to do that:
- Keep credit card debt low, and keep your balance well under your limit on credit cards.
- Pay all bills on time or early, before the due date.
- Stay focused — don’t apply for a new credit card or a car loan when you’re thinking of buying a home.
- And know your own credit score. You can check your credit reports for free once a year. Get reports from all three credit bureaus — Equifax, Experian, and TransUnion — because the information in each report can differ. If you notice any errors in the reports, you can dispute them with the bureau.
Down Payment and Closing Costs: What to Expect
When exploring an Islamic mortgage, understanding your upfront and ongoing costs is essential for a smooth home financing experience.
With halal mortgages, like other mortgages, you’ll likely get the best rate if you can pay a minimum down payment of around 20% of the purchase price, though this can vary depending on the financier and the specific Islamic financing product you choose. This initial deposit demonstrates your commitment and helps reduce your monthly payments over the life of the mortgage. But you can still get a halal mortgage with as little as 5% or sometimes even 3% down.
In addition to the down payment, home buyers should be prepared for closing costs. These can include a range of fees such as title insurance, appraisal fees, attorney fees, and other administrative charges.
Homeowners insurance and property taxes are also important factors, as they are typically included in your monthly payment and are necessary to protect your property and meet financier requirements.
It’s important to factor all these costs into your overall budget to ensure you can comfortably afford your new home. Islamic finance providers like Guidance Residential offer a variety of payment options to help you manage these expenses. By planning ahead for the down payment, closing costs, and ongoing insurance and tax obligations, you’ll be better positioned to navigate the home financing process with confidence.
Co-Ownership and Mortgage Pre-Approval: What You Need to Know
A unique feature of Islamic mortgages is the concept of co-ownership, where the borrower and the financier purchase the property together.
In a diminishing Musharaka arrangement, your share of the property increases with each monthly payment, while the financier’s share gradually decreases. You maintain full ownership benefits from day 1, as with any other mortgage.
To begin the process, you’ll need to obtain mortgage pre-approval. This involves submitting financial documentation— such as proof of income, bank statements, and credit information — to the financier. They will review your eligibility and, if approved, issue a pre-approval letter stating the amount of financing you qualify for. This letter is typically valid for a set period and can be used to make an offer on a property.
During the application process, you may be asked for additional documentation to verify your financial standing. Guidance Residential offers a streamlined online application process and a dedicated Account Executive to support you every step of the way. This ensures you have the guidance and resources you need to complete your mortgage application and move forward with your home purchase.
Conventional Mortgage vs. Islamic Financing: Key Differences
When deciding between a conventional mortgage and mortgage alternatives such as Islamic financing, it’s important to understand the fundamental differences in how these mortgages are structured.
Conventional home mortgage loans are based on lending money with interest, which is paid by the borrower over the loan term. Scholars agree that this interest-based model is not permitted in Islamic finance if other alternatives exist.
Islamic mortgages, such as those offered by Guidance Residential, are structured around co-ownership and profit-sharing. Instead of paying interest, the borrower makes a monthly payment that covers both their share of the purchase price and a profit margin for the financier. Over time, as you make payments, your ownership in the property increases until you become the sole owner.
Sharia-compliant mortgages provide a halal alternative for Muslims and non-Muslims alike, allowing you to purchase a home in a way that aligns with your values. Guidance Residential can help you compare payment options, terms, and eligibility requirements to find the best fit for your needs.
Does Prequalification Affect Your Credit Score?
Pre-qualification is not the same as pre-approval.
With pre-qualification, the financier does not verify the numbers you provide regarding income, debts, etc. You can receive your response more quickly than with a pre-approval, but it is only an estimate of the amount you may qualify for.
You can apply for pre-qualification without a second thought about the impact on your credit. Just remember to complete the full pre-approval before you begin searching for a home.
Should You Get a Pre-Approval?
Despite the slight effect on your credit score, if you’re getting ready to buy a home, you should get pre-approved before you begin actively searching.
This is especially important if you are buying your first home, as pre-approval helps you understand your mortgage options and strengthens your position as a first-time buyer.
Pre-approval enables you to search for the right home with confidence. Most real estate agents will expect you to be pre-approved before they take you to see homes.
Once you find the right home, being pre-approved means that you can move quickly to make an offer, and sellers will take your offer more seriously. After your contract is accepted, it also accelerates the path toward closing and getting those keys into your hand so you can move into your new home.
Ready to get started?
Buying a home is one of the most important decisions you will make. The team at Guidance Residential is here for you every step of the way, from pre-qualification and pre-approval on through to finding the right real estate agent for you and your family. We invite you to explore the home buying process with Guidance Residential today.
Guidance Residential remains the #1 U.S. Islamic home financing provider. Over the past 20 years, we have assisted more than 40,000 families. Learn more and get started on your home finance journey today.
Your Guidance Residential Account Executive is here to help with any questions. Looking to refinance or purchase? Have a friend or family member who is looking for a home? Call 1.866.Guidance, or start an application today.
Originally published in September 2021, updated September 2025.
