Does Mortgage Pre Approval Affect Credit Score?

For those interested in buying a home, being pre-approved for a mortgage can be a helpful starting point. Getting pre-approved in advance provides you with an indication of how much you can borrow and enables you to bid competitively when you spot the right home. However, some homebuyers tend to ask themselves whether getting pre-approved will affect their credit score.

The short answer is no, simply applying for mortgage pre-approval does not harm your credit rating. Lenders are required to run a credit check to see whether the applicant qualifies for the amount of mortgage they are applying for. They do what is called a soft credit check and this does not affect your credit rating in any way.

Difference between Hard and Soft Credit Inquiries There are two types of credit checks, namely; the hard inquiry and the soft inquiry. These are credit checks that occur when one applies for credit such as credit cards, auto loans, and others. The inquiries can cause your scores to drop a few points. A soft inquiry is a credit check conducted by creditors to prescreen you for prescreened offers or by consumers to check their scores. Soft credit checks do not have any effect on your credit score.

Here, it is important to note that when the mortgage lenders approve you, they do an initial check on your credit profile. They are not lending you a standard loan although they are not giving you full information. The lender simply prescreens you to inform you of the probable loan amount, interest rate, and monthly payments. This preliminary assessment enables them to assess your credit history and income, and it does not lower your score.

That is why pre-approval requires only a soft check. Lenders can do soft checks because pre-approval is not the final approval of a mortgage loan. In other words, pre-approval defines whether you would qualify for a loan if you applied for it today. However, much could alter by the time you seek the last mortgage approval. For example, the amount of income or debts can change before closing. That is why, lenders make a soft inquiry to determine your loan possibilities at the early stage of the housing purchase process.

What you will do after an accepted offer of the house is to go through the application as well as the approval process. This involves approaching the market directly to acquire the mortgage loan that is required to finance the property. Now, the lender will pull the credit report a second time because this credit check cements the terms of a real loan.

Credit Inquiries: Each mortgage application is considered as one hard pull. The first credit check before pre-approval does not harm your scores if you already have good credit. Most pre-approvals permit only one soft check. However, when we are formally seeking a mortgage, the credit check has to be hard for each application made with different mortgage companies.

For instance, you could obtain pre-approval from one mortgage lender to start with. However, it is wise to compare mortgage rates and mortgage estimates from different companies. Any subsequent application is considered a hard inquiry on the credit report. If you do hard checks consecutively, your scores will reduce by several points.

To avoid any hard inquiries, submit your application to your chosen lenders within thirty days. The three big credit reporting agencies consider multiple applications for the same loan type as a single inquiry within the same month.

How to Mitigate Credit Score Harm Here are some tips to get pre-approved while protecting your credit scores.

• Only use it if you're planning to look for a mortgage soon, then you can use the pre-approval letter. It is unnecessary to verify readiness status if one is not prepared for purchasing.
• Do not make too many pre-approval checks over a long period. A single soft hit should not directly affect your scores, but consecutive checks may be viewed as negative.
• This is a good time to be selective when formally applying for mortgages to buy a home. Do not apply to all the lenders you find online but rather stick to your favorite one or two.
• Tell lenders to check your credit only when you are serious with them. Dial 5 to opt out of automatic credit report checks as often as possible.
• Have current accounts in good standing while in the pre-approval and going through the mortgage process. Even a single missed payment or a slight rise in the amount can impact the possibility of obtaining a loan.

It is important to note that the pre-approval process does not pull your credit score so it does not harm you in any way. However, be sure to check your reports, refrain from conducting hard checks after formally applying, and keep up with good credit practices during the home-buying process. This way, one can obtain the necessary mortgage funding that is required while at the same time not harming your credit score.

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