Solved: Could Mortgage Pre-Approval Hurt Your Credit Score?

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 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 preapproval 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 the amount of the mortgage loan or other 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. 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 It 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 before the due date.
  • 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.  

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. With pre-qualification, the financier typically runs only a soft inquiry, which does not impact your credit score. 

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. 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? 

If you’re thinking about buying or refinancing a home, it’s easy to get started. Get pre-qualified online today in fewer than 10 minutes with Guidance Residential. 

Originally published in September 2021, updated April 2024.