One of the first steps in the homebuying process is getting pre-approved for a mortgage. This allows you to know how much you can afford to borrow and gives sellers confidence in your ability to secure financing. However, many people wonder if the act of getting pre-approved for a mortgage will negatively impact their credit score. Let’s explore this topic to clear up any misunderstandings.
Understanding Credit Scores
Before we delve into how getting pre-approved for a mortgage can affect your credit score, it’s important to understand what a credit score is and how it is calculated. A credit score is a number that reflects your creditworthiness based on your credit history. Lenders use this score to determine your borrowing risk and to make decisions about lending you money.
The most widely-used credit scoring model is the FICO® score, which ranges from 300 to 850. The higher your credit score, the lower the risk you pose as a borrower. FICO® scores are calculated using various factors, including payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries.
The Impact of Pre-Approval on Credit Score
The good news is that getting pre-approved for a mortgage generally does not have a significant impact on your credit score. When you apply for pre-approval, the lender will perform a credit check to assess your creditworthiness. This credit check is known as a “soft inquiry” and does not negatively impact your credit score.
Soft inquiries occur when you check your own credit report, when a lender pre-screens you for a credit offer, or when a potential employer conducts a background check. They are different from “hard inquiries,” which happen when you apply for new credit, such as a credit card or loan. Hard inquiries can slightly lower your credit score, typically by a few points.
Multiple Mortgage Pre-Approvals
When you are shopping around for a mortgage, it is common to get pre-approved by multiple lenders to compare interest rates and terms. The good news is that multiple mortgage pre-approvals made within a short period are usually grouped together as a single inquiry when calculating your credit score. This is known as “rate shopping” and helps minimize the impact on your credit score.
According to FICO®, as long as all mortgage applications are made within a 45-day window, they will only count as a single inquiry when determining your credit score. This allows you to explore different mortgage options without worrying about multiple inquiries negatively affecting your creditworthiness.
Protecting Your Credit Score
While getting pre-approved for a mortgage may not have a significant impact on your credit score, it’s important to understand that other factors can affect your creditworthiness. These include making late payments, carrying high credit card balances, or defaulting on loans.
To protect your credit score and improve your chances of getting approved for a mortgage, it’s important to maintain a good payment history, keep your credit utilization low, and avoid taking on excessive debt. These factors have a more significant impact on your credit score than the act of getting pre-approved for a mortgage.
Frequently Asked Questions Of Does Getting Pre Approved For A Mortgage Affect Credit Score : Insider Tips For Maximum Impact
How Does Getting Pre-approved For A Mortgage Affect Credit Score?
Getting pre-approved for a mortgage does not directly affect your credit score. The pre-approval process typically involves a soft credit check, which has no impact on your score.
Will Multiple Mortgage Pre-approvals Hurt My Credit?
Having multiple mortgage pre-approvals within a short period usually won’t harm your credit. Credit bureaus understand that borrowers shop around for the best rates, so they count multiple inquiries as a single event.
Can Mortgage Pre-approval Lower Credit Score?
Mortgage pre-approval itself does not lower your credit score. However, if you apply for multiple loans and each lender conducts a hard credit check, it may have a temporary impact on your score.
How Long Does Mortgage Pre-approval Affect Credit?
The impact of a mortgage pre-approval on your credit typically lasts for about 12 months. After that period, it’s advisable to get a new pre-approval if you’re still in the market for a mortgage.
Conclusion
In conclusion, getting pre-approved for a mortgage generally does not have a negative impact on your credit score. The credit check performed by lenders during the pre-approval process is considered a “soft inquiry” and does not significantly affect your creditworthiness. Additionally, if you apply for multiple mortgage pre-approvals within a short period, they are typically treated as a single inquiry.
While getting pre-approved for a mortgage is an important step in the homebuying process, it’s essential to maintain good credit habits to protect your credit score. By making timely payments, keeping your credit utilization low, and avoiding excessive debt, you can ensure a healthy credit score and increase your chances of securing the mortgage you desire.
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
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