How Mortgage Prequalification Can Affect Your Credit Score

It might seem like getting prequalified for a mortgage would ding your credit, but it typically doesn't. The process usually involves a soft inquiry, which has no impact on your score.

1. Initial Prequalification: You'll provide a lender with a high-level overview of your finances. They run a soft credit pull, which isn't visible to other lenders and won't change your score.
2. Advancing to Pre-Approval: When you're ready to make offers, you’ll formally apply for pre-approval. This deeper dive requires documentation and authorizes the lender to perform a hard credit inquiry.
3. The Hard Inquiry Impact: This formal inquiry is recorded on your credit report and can cause a minor, temporary drop in your score. For most people, the dip is fewer than five points.
4. Rate Shopping Window: Credit scoring models are smart. Multiple mortgage-related hard inquiries within a 14- to 45-day window are typically bundled and treated as a single event, minimizing credit score damage.
5. Securing the Loan: The small dip from an inquiry is short-lived. Once you get the mortgage, a history of consistent, on-time payments will ultimately build and strengthen your credit score over time.

How Much Will Mortgage Prequalification Affect Your Credit Score?

The impact of a mortgage prequalification on your credit score can vary. Here are a few key things to consider as you begin the process.

• Soft vs. Hard Inquiries. Most prequalifications only require a soft credit pull, which does not affect your score. A hard inquiry, sometimes required for pre-approval, may cause a small, temporary dip.
• Rate Shopping Window. Credit scoring models typically treat multiple mortgage inquiries within a short period as a single event. This allows you to shop around for rates without your score taking multiple hits.

How You Can Avoid Mortgage Prequalification Affecting Your Credit Score

Opt for a Soft Inquiry

Many lenders can prequalify you using a soft credit pull, which does not impact your credit score. This process relies on self-reported financial details to give you a preliminary loan estimate, allowing you to gauge your options without a formal credit check.

Utilize the Rate-Shopping Window

Credit scoring models typically treat multiple mortgage inquiries within a 14 to 45-day period as a single event. By confining your applications to this timeframe, you can compare offers from various lenders while only sustaining the impact of one hard inquiry.

Distinguish Between Prequalification and Preapproval

Prequalification is often an informal estimate that may not require a hard credit check. In contrast, preapproval is a more rigorous conditional commitment that almost always does. Confirming the lender's process beforehand helps you manage potential impacts to your credit score effectively.

Ways to Improve Your Credit Score

Improving your credit score is not only possible, but it's also a critical step toward better financial health. According to an expert guide, taking consistent, positive action can yield meaningful results in just a few months as your score impacts everything from loan approvals to interest rates.

• Monitor Your Credit Reports: Regularly check your reports from all three major bureaus—Experian, TransUnion, and Equifax. This helps you spot and dispute inaccuracies, track your progress, and detect potential identity theft early on.
• Establish Automatic Bill Payments: Payment history is the single most significant factor in your score. Setting up automatic payments ensures you never miss a due date, building a strong record of on-time payments.
• Reduce Your Credit Utilization Ratio: Aim to keep your credit utilization—the amount of credit you're using compared to your total limit—below 30%. You can achieve this by paying down balances or requesting a credit limit increase on existing cards.
• Become an Authorized User: If you have a trusted friend or family member with a strong credit history, ask to be added as an authorized user on their account. Their positive payment history and low utilization can give your score a boost.
• Diversify Your Credit Mix: Lenders like to see that you can responsibly manage different types of credit. Having a healthy mix of accounts, such as credit cards and installment loans, can positively impact your score over time.
• Limit Hard Inquiries: While you shouldn't be afraid to apply for new credit when you need it, avoid submitting too many applications in a short period. Each application can trigger a hard inquiry, which may temporarily lower your score.

The Bottom Line

A mortgage prequalification typically involves a soft credit inquiry and won't affect your credit score, unlike a preapproval, which often requires a hard pull that can have a minor impact.

Frequently Asked Questions

Does getting prequalified for a mortgage hurt my credit score?

Typically, no. Most lenders use a soft credit inquiry for prequalification, which does not impact your credit score. It's a preliminary review of your finances.

How many lenders can I get prequalified with?

You can get prequalified with multiple lenders. Since these are usually soft inquiries, you can shop for the best rates without negatively affecting your credit score.

Is a prequalification a hard or soft credit check?

Prequalification is almost always a soft inquiry. A pre-approval, the next step in the mortgage process, typically requires a hard inquiry, which can slightly lower your score.