Prequalification is a key first step in the home purchase process for many borrowers. The soft inquiry for a mortgage won’t hurt your credit score, but it will show up on your credit reports.
Find out if you can get a mortgage loan by getting prequalified. This will let you know how much you can borrow. While it wont hurt your credit to go through the prequalification process, the lender will still evaluate your credit history.
For those getting ready for the mortgage process, here’s what you need to know about mortgage prequalification and how it’s different from mortgage preapproval.
Getting pre-approved for a mortgage, auto loan, or credit card can be an important first step before formally applying for new credit. But does getting pre-approved hurt your credit score? For most types of credit, the impact is minor. However, it’s wise to understand how many points a pre-approval dings your credit so you can make an informed decision.
What is Pre-Approval?
When you receive a pre-approval for credit, it means a lender or creditor has prescreened you and found you meet at least some of the criteria they are looking for While final approval and terms aren’t guaranteed, a pre-approval indicates you’re a promising candidate for a credit product It also provides key details like the amount you may qualify for and estimated interest rate.
There are two main types of credit checks – soft inquiries and hard inquiries. Fortunately, most pre-approvals only require a soft credit check which doesn’t affect your credit score. However, some types of pre-approvals do need a hard inquiry. Let’s take a closer look:
Soft Inquiries
- Checking your own credit score
- Pre-approval for credit cards
- Pre-approval for personal loans
- Most other pre-screening by lenders
Soft inquiries allow creditors to review your credit reports and scores without any impact to your credit. They help lenders determine if you meet the basic requirements to send you initial pre-approved offers.
Hard Inquiries
- Pre-approval for mortgages
- Pre-approval for auto loans
- Any application requiring extensive verification
Hard inquiries look more deeply into your credit reports and do lower your credit score by a small amount. These are needed whenever a lender needs to check your income, debts, employment, and other details to make sure you meet the loan requirements.
How Many Points Does Pre-Approval Lower Your Credit Score?
The number of points an inquiry drops your credit score depends on your specific credit situation, including
- Your current credit scores
- Your total number of recent inquiries
- Other factors like credit usage and history
However, most people see a drop between 3 to 5 points per hard inquiry. Those with excellent credit tend to see a smaller drop compared to those with lower scores.
Here’s how different types of pre-approvals impact your credit:
Mortgage Pre-Approval
Getting pre-approved for a mortgage requires a hard credit check. The lender needs to verify your credit, income, employment, assets and debts to determine the loan amount and terms you qualify for.
This hard inquiry may drop your credit score 3 to 5 points. But it’s an essential part of the home buying process and shows sellers you’re serious.
Auto Loan Pre-Approval
Similar to a mortgage, an auto lender has to check your credit reports to pre-approve you for a car loan. The hard inquiry from this could lower your credit score by around 3 to 5 points. The drop is usually temporary if you have good credit habits.
Credit Card Pre-Approval
Credit card pre-approvals usually don’t need a hard credit check, which is good news. Soft inquiries are how card issuers check to see if you’d be a good fit for their cards. If you accept an offer, there is a hard check on the official application.
So a credit card pre-approval itself won’t negatively impact your credit scores. However, proceeding with the full application will cause a small, temporary drop.
Personal Loan Pre-Approval
Personal loan pre-approvals also only need a soft credit inquiry in most cases. This allows lenders to provide estimated rates and terms without a ding to your credit. But the full application still results in a hard pull.
Does Checking Your Own Credit Lower Your Scores?
An important question related to pre-approvals is whether checking your own credit hurts your credit score. The good news is that it absolutely does not!
It is called a “soft inquiry” when you check your own credit report and score. Before applying for new credit, it’s a good idea to check your own credit. You can easily check your credit through sources like:
- Free annual credit reports from AnnualCreditReport.com
- Credit monitoring services
- Credit card and personal loan companies
It has no effect on your credit scores at all if you check it yourself. You don’t have to worry that being proactive will lower your score.
Tips to Minimize the Credit Impact
If you’re worried about your credit score dropping from hard inquiries, here are some tips to minimize the impact:
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Limit applications – Only apply for credit you truly need to avoid unnecessary inquiries.
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Consolidate shopping – If applying for a mortgage or auto loan, condense applications into a short timeframe so credit bureaus count them as one inquiry.
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Strengthen your credit – A minor drop won’t hurt as much if you already have excellent credit. Focus on positive habits.
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Wait for your score to recover – Give your credit score time to rebound before applying for more credit.
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Consider alternatives – Ask if a lender can first make a soft inquiry to avoid a hard credit check.
As long as you apply conservatively, the small credit dip from a pre-approval is nothing to worry about. If possible, check your own credit first before formally applying.
Benefits of Getting Pre-Approved
Despite the potential for a minor credit score drop, pre-approval has many benefits:
- Provides estimated rates and terms for new credit
- Gives you an idea of approval odds before applying
- Shows lenders you’re a serious applicant
- Allows you to compare offers from multiple lenders
- Saves time by avoiding credit products you won’t qualify for
For mortgages and auto loans especially, a pre-approval is extremely useful and shows sellers and dealers you’re ready to transact. Just be selective about which inquiries are necessary so as not to hurt your credit unnecessarily.
How Long Does the Credit Score Drop Last?
The good news is credit score dips from inquiries are usually temporary. Here’s an overview of how long pre-approval inquiries stay on your credit reports:
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Mortgage inquiries – Typically remain on your credit reports for 12 months, but may impact your scores for a shorter period.
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Auto loan inquiries – Remain on your credit reports for 12 months, but the credit score impact dissipates more quickly.
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Credit card inquiries – Soft inquiries aren’t recorded, hard inquiries remain for 24 months.
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Personal loan inquiries – Hard inquiries remain for 24 months though impact fades.
As long as you continue practicing good credit habits, your scores should rebound within 6 months or less in most cases. Limiting new inquiries and credit applications will also allow your scores to recover more quickly.
How to Check Your Credit Reports
Since checking your own credit has no impact on your scores, it’s smart to review your credit reports before applying for new credit. Here are two easy ways to check your credit for free:
1. AnnualCreditReport.com
This official site lets you obtain your credit reports for free once per year from each bureau:
- Equifax
- Experian
- TransUnion
Checking your own reports does not affect your credit. Reports won’t show your credit scores but will display your full history.
2. Credit monitoring services
Many personal loan companies, credit card issuers, and credit monitoring services also provide free access to your credit reports and scores. This is another no-cost way to monitor your credit.
Be sure to check your credit from time to time to ensure there are no errors or suspicious activity. Monitoring services can also alert you whenever changes occur.
Pre-Approval Vs. Pre-Qualification
Two terms people often confuse are pre-approval and pre-qualification. What’s the difference?
Pre-Approval
- Lender reviews your credit reports and income verification
- Requires a hard credit check
- Provides a firm estimate of loan amount, rates, etc.
- Shows sellers and lenders you are very likely to qualify
Pre-Qualification
- Based solely on information you provide
- No verification of income or credit check
- Provides a rough estimate of potential loan amount
- Less attractive to sellers than a pre-approval
Pre-approvals carry more weight because lenders have already verified your financial details, while pre-qualifications only rely on your word.
The Bottom Line
Pre-approval can cause a small, temporary drop in your credit scores – but the impact is minor compared to the benefits. For mortgages and auto loans especially, being pre-approved makes your offers stronger. Just be selective about which inquiries are necessary for credit products you truly need and plan to apply for.
Most people see a dip of 3 to 5 points or less from a single hard credit inquiry. But with responsible credit usage over time, your scores should recover within 6 months. Checking your own credit reports has no impact, so monitor your credit prior to applying. Lastly, limit applications to credit you reasonably expect to use to avoid unnecessary dings.
How Does Mortgage Prequalification Work?
While each lender’s mortgage prequalification process is a little different, you can expect to be asked for some basic information about your finances. In general, lenders will take a look at the following details:
Lenders look at your credit report and finances to figure out how much of a loan you can afford and how risky you are as a borrower.
The lender will be able to tell you if you are qualified for different types of mortgages and give you an idea of how much you can borrow. You may also receive a prequalification letter, which you can share with home sellers and real estate agents to show that youll likely be able to buy a home.
Does a Mortgage Preapproval Impact Your Credit Score?
While the prequalification process can give you some basic information about your ability to borrow money, it wont give you an estimate of your loan terms.
For that, youll need to get preapproved, which involves a deeper understanding of your financial situation and credit profileâsimilar to the actual mortgage application process. Mortgage preapproval also typically requires a hard credit check, but remember that the impact will be slight and temporary.
Does Pre-approval Affect Credit Scores? – CreditGuide360.com
FAQ
Does a credit card preapproval affect your credit score?
A preapproval letter tells you how likely it is that you will be approved for new credit and what interest rate you might get. While a credit card preapproval doesn’t affect your credit, a preapproval for a mortgage or car loan could cause a minor but temporary decrease in your credit score.
Does a mortgage preapproval affect your credit score?
A hard inquiry on your credit report may happen because you were preapproved for a mortgage. This can temporarily lower your credit score by a few points. That said, getting preapproved for a mortgage is an important step in the home buying process and is highly recommended. The good news is that this ding on your credit score is temporary.
Do preapproved offers affect my credit score?
Generally, preapproved offers, such as those from credit card issuers, don’t directly impact your credit score. But once you accept the preapproval, the lender will likely review your credit history as part of a more thorough final approval process, which will result in a hard inquiry.
Do preapproved buyers check your credit score?
They don’t check your credit history or verify your income. Preapproved buyers tend to be more attractive to sellers than prequalified buyers because a lender has verified the financial capacity of the preapproved buyer. Does preapproval affect your credit score?.
How long does a better mortgage pre-approval take?
A Better Mortgage pre-approval takes as little as 3 minutes to complete and uses a soft credit check to give you an idea of how much you can borrow without impacting your credit score. If a bank sends you a letter saying you’ve been pre-approved for a new credit card, that means they have done a “soft credit check.”
Will preapproval affect my FICO score if I’m a first-time homebuyer?
Green said mortgage preapproval could lead to a five- to 10-point drop in a borrower’s FICO score if they’re a first-time homebuyer with limited credit history. Applicants with a long history of responsible credit use may see less impact, depending on the information in their application.
How many points does your credit drop when getting pre-approved?
Getting pre-approved does not hurt your credit score. As we discussed earlier, a pre-approval may require running a soft inquiry, which, unlike a hard inquiry, does not hurt your credit score.
How much does pre-approval affect credit score?
How fast can I get my credit score up 200 points?
Everyone’s credit history and credit rating are different, so it’s difficult to say for sure how long it will take to raise your credit score by 200 points. However, if you follow the right strategies, you’ll see noticeable improvement somewhere between a few months to a year.
Do multiple preapprovals affect credit score?
The good news is that if you’re shopping around and get pre-approved by multiple lenders within a short timeframe (typically a few weeks), credit scoring models will count those inquiries as a single event. This helps minimize any impact on your score while you explore your options.Dec 20, 2024