How Many Points Does Pre-Approval Affect Your Credit Score?

Before you buy a house, it’s important to get pre-approved for a mortgage. Sellers will see that you are a serious buyer who has been checked out by a lender. A lot of people who want to buy a house wonder if getting pre-approved for a mortgage will hurt their credit score. The short answer is that it might go down a few points for a short time. However, mortgage pre-approval has big advantages that far outweigh this small drawback.

In this article, we’ll explain:

• What mortgage pre-approval is
• Why pre-approval is recommended
• How pre-approval affects your credit score
• Tips for minimizing the credit impact
• How to offset any effects on your score

What Is Mortgage Pre-Approval?

Pre-approval involves submitting financial documents and undergoing a credit check so a lender can verify your finances. If approved you’ll receive a pre-approval letter stating the loan amount and terms you qualify for.

This shows sellers you’re a low-risk buyer who has been thoroughly vetted. Sellers often prefer offers from pre-approved buyers.

Pre-approval is not the same as pre-qualification, which is based only on verbal information and doesn’t check your credit or confirm your income.

Why Get Pre-Approved for a Mortgage?

Here are some key benefits of getting pre-approved:

• Know your budget. You can find out how much of a home loan you can get by getting pre-approved. This helps you make a budget that you can stick to and keeps you from looking at homes that you can’t afford.

• Stronger bargaining position. Sellers favor pre-approved buyers since there’s less risk of the sale falling through. This gives you an edge in competitive markets.

• Speeds up the process. After your offer is accepted, the mortgage process goes faster because your credit and income have already been checked.

• Lock in current rates. Interest rates fluctuate daily. Locking in your rate during pre-approval holds that rate for 60-90 days in most cases.

While pre-approval can slightly lower your credit score, the advantages make it an essential step for serious homebuyers.

How Does Pre-Approval Affect Your Credit Score?

When you apply for mortgage pre-approval, the lender does a hard inquiry on your credit report. Too many hard inquiries in a short period can lower your score.

However, for pre-approval you can apply with multiple lenders in a short timeframe without accumulating multiple hard inquiries. The credit bureaus understand rate shopping is common with mortgages.

Here’s how multiple pre-approval inquiries affect your credit:

• If you apply with several lenders within 14 days, the inquiries will be treated as a single inquiry.

• With newer FICO models, you get a 45-day window for mortgage rate shopping.

So checking rates with 3 different lenders would count as a single hard inquiry as long as you apply within 14-45 days. This minimizes the impact to your score.

How Many Points Could Pre-Approval Drop Your Score?

The drop varies, but is generally minor. Here’s how much your credit score could decrease:

• 1-5 points – Typical impact of a single hard inquiry

• 10-15 points – If you apply outside the 14-45 day rate shopping window

This small drop will recover within a few months as you continue paying bills on time.

Tips to Minimize the Credit Score Impact

You can take a few steps to reduce the effect of pre-approval on your credit:

• Compare rates in a short period – Applying within 14-45 days results in fewer hard inquiries.

• Limit applications – Don’t apply for new credit cards or loans while getting pre-approved.

• Avoid new hard inquiries – Soft inquiries from checking your own credit won’t affect your score.

• Check all three credit reports – Make sure there are no errors that could negatively impact your credit.

How to Offset the Credit Score Effect

If your credit score drops after getting pre-approved, here are some ways to offset the dip:

• Pay all bills on time. Payment history is the biggest factor affecting your credit. Stay diligent.

• Pay down balances. Keep credit card balances low and pay off debt to lower your credit utilization.

• Wait it out – Your score will recover within six months as long as you practice good credit habits.

• Become an authorized user – Being added as an authorized user on someone’s credit card with good payment history can give your score a boost.

• Dispute errors – If your credit report contains mistakes, file disputes to correct errors and raise your score.

The Bottom Line

While mortgage pre-approval can result in a minor temporary drop in your credit score, it signals to sellers you’re a serious buyer and paves the way for a smoother home buying process. As long as you minimize credit inquiries and continue using credit responsibly, the dip should be small and short-lived. The benefits of getting pre-approved far outweigh this negligible downside.