If you’re shopping around for a mortgage, you’ve probably heard that you should start by getting pre-approved. If you’re like a lot of people, your next thought might be to wonder what this will do to your credit score. After all, the last thing you want is a ding to your credit when you need it in the best possible shape.
The answer is that getting pre-approved can hurt your credit—but not very much, and your score will quickly recover.
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What is mortgage pre-approval?
A mortgage pre-approval is a provisional guarantee from a lender that they’ll give you a mortgage of a certain size (i.e., for a certain amount of money).
Pre-approval exists for other types of loans, such as auto loans, but it’s most common for mortgages. When a mortgage lender pre-approves you, they’ll send you a document that you can show real estate agents and sellers to prove you have access to the money needed to buy a house.
Loan pre-approvals take a lot of work to prepare—you’re expected to provide bank statements, income information, tax returns from the last few years, and even your W2s. Once you provide this documentation to your lender, they’ll conduct a credit check on you.
This credit check will cause a hard inquiry to appear on your credit report. Hard inquiries cause a minor drop in your credit score, which is why mortgage pre-approval hurts your credit.
How is mortgage pre-approval different from prequalification?
People often confuse the terms “pre-approval” and “prequalification,” but they mean different things and have different implications for your credit.
Prequalification comes earlier in the mortgage application process. When you ask a lender to prequalify you, they’ll take a quick look at your credit history and finances and give you a tentative estimate of what kind of mortgage they think you can qualify for.
In contrast, pre-approval involves a more comprehensive overview of your credit and results in a clear offer of a specific mortgage. It’s still not 100% guaranteed that you’ll actually get it—nothing’s locked in until you formally apply—but pre-approval is a lot more definite than prequalification.
Why prequalification doesn’t hurt your credit
In contrast to pre-approval, mortgage prequalification only requires a soft credit inquiry, which is a type of credit check that doesn’t affect your credit. This means that, unlike pre-approval, mortgage prequalification doesn’t hurt your credit score.
How much does mortgage pre-approval hurt your credit?
As mentioned, when your mortgage lender (e.g., your bank) checks your credit as part of the pre-approval process, it will leave a hard inquiry on your credit report.
Most of the time, hard inquiries drop your credit score by around 5 points. This isn’t completely meaningless, but it isn’t a huge deal, either. It’s rare for a difference of 5 points to significantly impact your life.
Receiving a hard inquiry does mean you might want to be cautious about applying for new credit accounts (such as credit cards) in the next few months after your pre-approval. If you incur too many hard inquiries in a short period, those 5-point drops can start to add up.
Aside from that, the small hit to your credit from getting pre-approved for your mortgage really isn’t something you need to worry about.
How long will the credit score damage from mortgage pre-approval last?
Hard inquiries remain on your credit report for 2 years, but they only affect your credit score for 1 year, which puts an upper limit on how long the damage from getting pre-approved can possibly last.
In practice, it’s rare for hard inquiries to affect you for any longer than 6 months, and the effect will probably be fairly negligible after just about 3.
Should you get pre-approved for a mortgage?
Even though mortgage pre-approval will hurt your credit score, it still has several benefits that make it worth it:
- Gives you a definite idea of your budget
- Increases your leverage to negotiate deals with sellers
- Makes it easier to lock in a good interest rate
- Ensures faster loan approval
- Gives you an advantage over competing homebuyers who don’t have pre-approval
Getting pre-approved makes your mortgage more predictable—and makes it possible to get a better one, which will save you money. This almost always outweighs the small and temporary hit to your credit.
How to prepare for mortgage pre-approval
Before applying for loan pre-approval, make sure you’re taking the proper steps to prepare. Here are good places to start:
- Get your credit score as high as possible: When you have good credit, you’ll get access to better interest rates, which could save you thousands of dollars over the life of your mortgage. Take steps to improve your credit score before applying for pre-approval so you get the best offers.
- Know how long your pre-approval offer will last: Pre-approval offers for mortgages are typically only good for 90 days. 1 After that, your bank or lender will need to issue you a new pre-approval offer, which won’t necessarily be as good as the first.
- Get more than one pre-approval offer: Don’t just settle for the first loan offer you get. Visit multiple lenders and compare rates to ensure you’re getting the best deal.
- Submit all your applications around the same time: FICO credit scoring models, which are used by over 90% of lenders, ignore duplicate hard inquiries that occur within a 14-day period (in older models) or 45-day period (newer models). Taking advantage of this rate-shopping window will allow you to explore all your options while minimizing the damage to your credit score. 2 3
The more you understand about how pre-approval works, the better you’ll be able to minimize its damage to your credit score and take advantage of all the benefits it can have for your loan prospects and finances.