How Pre-Approval Can Affect Your Credit Score

While getting pre-approved for a loan is a key step for many buyers, it can cause a temporary dip in your credit score. Here’s a look at how that happens.

1. Application Submission: You formally apply for pre-approval with a lender, providing detailed financial information. This signals to the lender that you are a serious prospective borrower.
2. The Hard Inquiry: To verify your creditworthiness, the lender requests your credit report from one of the major credit bureaus. This action is known as a "hard inquiry" or "hard pull."
3. Initial Score Impact: A hard inquiry is noted on your credit report and typically causes a minor, temporary drop in your credit score, usually by less than five points.
4. Rate-Shopping Grace Period: Modern credit scoring models recognize that consumers shop for the best loan rates. Multiple inquiries for the same type of loan (like a mortgage or auto loan) within a 14 to 45-day window are often treated as a single event, minimizing the credit score impact.
5. Score Recovery: The effect of a hard inquiry is short-lived. The inquiry itself remains on your report for two years but generally only impacts your score for the first year, with the dip often recovering much sooner with responsible credit management.

How Much Will Pre-Approval Affect Your Credit Score?

When considering mortgage pre-approval, it's important to understand the potential impact on your credit. Here are a few key factors to keep in mind:

• Hard Inquiry. Mortgage pre-approval typically results in a hard inquiry on your credit report. This allows lenders to see your full credit history to assess your risk as a borrower.
• Minor Score Drop. A single hard inquiry may cause a temporary dip in your credit score, usually by five points or less. This minor effect typically diminishes within a few months.
• Rate Shopping Window. Scoring models often group multiple mortgage inquiries within a 14 to 45-day period as a single event. This lets you shop for the best rates without further damaging your score.

How You Can Avoid Pre-Approval Affecting Your Credit Score

Understand Soft vs. Hard Inquiries

Most pre-approvals use a soft inquiry, which doesn't impact your credit score. This initial check gives lenders a glimpse of your creditworthiness without the formal commitment of a hard pull, which is reserved for a full application. Confirming the inquiry type is key.

Utilize the Rate-Shopping Window

Credit scoring models allow for a "rate-shopping" period, typically 14 to 45 days. Multiple hard inquiries for the same type of loan, like a mortgage or auto loan, within this window are treated as a single event, minimizing the impact on your score.

Confirm the Process with Lenders

Before proceeding, ask the lender directly if their pre-approval process involves a soft or hard credit check. This simple question provides clarity and helps you avoid an unintended hard inquiry on your credit report, preserving your score while you explore your options.

Choose the Right Card to Pre Approval

No matter your current standing, improving your credit score is an achievable goal that significantly impacts your financial life. By following a few proven methods, you can see meaningful changes within just a few months of consistent, positive behavior.

• Monitor your credit reports regularly. Obtain free reports from the three major bureaus to identify and dispute inaccuracies, detect potential fraud, and track your progress.
• Establish automatic bill payments. Since payment history is the most significant factor in your score, setting up automatic payments ensures you never miss a due date.
• Reduce your credit utilization ratio. Aim to keep your balance below 30% of your total credit limit by paying down debt or requesting a credit limit increase.
• Become an authorized user. Being added to a credit card account with a long history of on-time payments and low utilization can help boost your score.
• Diversify your credit mix. Lenders like to see that you can responsibly manage different types of credit, such as credit cards, installment loans, and mortgages.
• Limit hard inquiries. Avoid applying for too much new credit at once, as multiple hard inquiries in a short period can temporarily lower your score.

The Bottom Line

Getting pre-approved for a mortgage requires a hard credit inquiry, which may cause a small, temporary dip in your credit score. The effect is typically minimal for most homebuyers.

Frequently Asked Questions

Does getting pre-approved hurt my credit score?

Yes, the pre-approval process typically involves a hard credit inquiry, which can cause a minor and temporary dip in your credit score by a few points.

How many pre-approvals can I get at once?

You can shop around. Credit scoring models usually treat multiple inquiries for the same type of loan within a 14-45 day period as a single event.

Is pre-qualification different from pre-approval for my credit?

Yes. Pre-qualification typically uses a soft inquiry that doesn't impact your score, while pre-approval requires a hard inquiry that can cause a temporary score drop.