When you are thinking of buying a new home, one of the first steps is getting a mortgage pre-approval. This allows you to determine how much you can afford to borrow and provides you with a better understanding of your financial situation. However, a common question that often arises is whether or not a mortgage pre-approval affects your credit score.
The short answer is that a mortgage pre-approval may have a temporary impact on your credit score, but it is typically minimal and should not cause any long-term damage. Let’s take a closer look at why this is the case.
Soft Inquiry vs. Hard Inquiry
When you apply for a mortgage pre-approval, the lender will typically perform a credit check. Credit checks come in two forms: soft inquiries and hard inquiries. Understanding the difference between these two types of inquiries is important in understanding the impact on your credit score.
A soft inquiry is a check that does not affect your credit score. It is usually performed as part of a background check or when you check your own credit score. A mortgage pre-approval generally involves a soft inquiry, which means it will not have a negative impact on your credit score.
On the other hand, a hard inquiry is a check that can lower your credit score temporarily. This type of inquiry typically occurs when you apply for new credit, such as a credit card or a loan. While a mortgage pre-approval involves a credit check, it is not considered a hard inquiry in most cases.
Rate Shopping and Credit Score Impact
One factor to consider is that credit bureaus typically allow you to rate shop within a certain period of time without significantly affecting your credit score. This means that if you are shopping around for the best mortgage rates, multiple lenders can check your credit score within a specific timeframe (usually around 30 days) without it negatively impacting your credit score.
However, it is important to note that even though multiple mortgage pre-approvals within a short period may not dramatically affect your credit score, it’s always wise to be cautious and limit the number of lenders you approach. Be strategic and focus on choosing reputable lenders that align with your needs and financial situation.
Protecting Your Credit Score
While a mortgage pre-approval may not have a significant impact on your credit score, it is still essential to protect your credit during the home buying process. Here are a few tips to help you protect your credit score:
- Pay your bills on time: Late payments can negatively impact your credit score, so make sure to stay on top of your financial obligations.
- Avoid new credit: While it is necessary to open a new mortgage account, it’s best to refrain from opening any other new credit accounts during the home buying process.
- Keep credit utilization low: Aim to keep your credit utilization ratio (the amount of credit you are using compared to your total credit limit) below 30% to maintain a healthy credit score.
- Review your credit report: Regularly check your credit report for any errors or inconsistencies and report them to the credit bureaus if necessary.
By following these guidelines, you can ensure that your credit remains strong throughout the home buying process.
The Bottom Line
Mortgage pre-approvals generally do not have a significant impact on your credit score. While there might be a small temporary decline due to the credit check, it should not cause any long-term damage. Keep in mind that being excessive in seeking pre-approvals can have a cumulative impact, so it’s important to be mindful of how many lenders you approach within a certain timeframe.
Remember to make timely payments, avoid new credit accounts, and review your credit report regularly to protect your credit score during the home buying process. With responsible financial management, you can navigate the mortgage pre-approval process without worrying about adverse effects on your credit score.
Frequently Asked Questions For Does A Mortgage Pre-approval Impact Your Credit Score? Learn The Truth!
Does Getting A Mortgage Pre-approval Affect Credit Score?
Getting a mortgage pre-approval typically results in a soft credit pull, which doesn’t negatively impact your credit score.
Why Is A Mortgage Pre-approval Significant For Homebuyers?
A mortgage pre-approval helps homebuyers understand their budget, shows sellers their seriousness and may lead to a quicker closing.
Can Multiple Mortgage Pre-approvals Damage Credit Score?
Seeking multiple pre-approvals within a short period may impact the credit score. It’s advisable to space out applications.
How Long Does A Mortgage Pre-approval Last?
A mortgage pre-approval usually remains valid for 60-90 days, depending on the lender’s policy.
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
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