Applying for a mortgage is an important step in the home-buying process. Before you start house hunting, it’s common for potential buyers to seek a mortgage pre-approval. A pre-approval helps you determine how much you can borrow and gives you an idea of the interest rates you may qualify for. However, you might be wondering if obtaining a mortgage pre-approval can have any impact on your credit score. In this article, we’ll explore the relationship between mortgage pre-approvals and credit scores.
Soft Inquiries vs. Hard Inquiries
When you apply for a mortgage pre-approval, the lender will typically pull your credit report to assess your creditworthiness. This process generates a credit inquiry. However, the impact of this inquiry on your credit score depends on whether it’s classified as a soft inquiry or a hard inquiry.
Soft Inquiries:
A soft inquiry occurs when you check your own credit or when a lender pre-screens you for a credit offer. Soft inquiries have no impact on your credit score. Therefore, obtaining a mortgage pre-approval, which involves a soft inquiry into your credit history, will not affect your credit score negatively.
Hard Inquiries:
A hard inquiry, on the other hand, is generated when a lender evaluates your creditworthiness after receiving your application. A hard inquiry can slightly lower your credit score, typically by a few points. However, the impact is usually temporary and minimal, often only lasting for a few months.
Rate Shopping and Credit Score Impact
It’s important to note that credit scoring models understand that individuals may need to shop around for a mortgage or other types of loans. To protect your credit score, they treat multiple inquiries for the same type of loan, like a mortgage, as a single inquiry if made within a specific period of time.
For example, if you obtain multiple mortgage pre-approvals within a 14 to 45-day window, the credit scoring models will recognize that you are rate shopping and will consider these inquiries as a single inquiry. This means that your credit score will be minimally impacted, as if only one inquiry had been made.
Monitor Your Credit Report
It’s always a good practice to monitor your credit report regularly. By doing so, you can check for any inaccuracies and spot potential signs of identity theft. When you receive your credit report, review it carefully to ensure that all the information is accurate and up-to-date.
If you notice any discrepancies or unauthorized activity, contact the credit reporting agencies immediately to address the issue. Keeping an eye on your credit report can help you maintain a healthy credit score and make necessary corrections if needed.
Frequently Asked Questions On Does Mortgage Pre Approval Affect Credit Score? Discover The Truth!
Does Getting Pre-approved For A Mortgage Affect Your Credit Score?
Getting pre-approved for a mortgage does not significantly impact your credit score. Lenders perform a soft credit inquiry, which doesn’t affect your score.
Can Mortgage Pre-approval Hurt Credit Score?
Mortgage pre-approval typically results in a small, temporary decrease in credit score due to the lender’s soft credit inquiry. But the impact is minimal.
How Long Does Pre-approval Affect Credit Score?
Pre-approval’s impact on your credit score lasts for a limited time. Usually, the slight decrease due to the initial credit inquiry is temporary and will rebound quickly.
Is It Bad To Get Pre-approved For A Mortgage?
Getting pre-approved for a mortgage is not inherently bad for your finances. It’s a standard part of the homebuying process and demonstrates financial readiness to sellers.
Conclusion
In conclusion, obtaining a mortgage pre-approval generally has a minimal impact on your credit score. The initial credit inquiry is considered a soft inquiry, which does not affect your score. Even if it’s classified as a hard inquiry, it typically has a temporary and minor impact. Remember that credit scoring models account for rate shopping and treat multiple inquiries within a specific period as a single inquiry. So, don’t be afraid to seek mortgage pre-approval and compare offers from different lenders to make an informed decision.
Ismail Hossain is the founder of Law Advised. He is an Divorce, Separation, marriage lawyer. Follow him.
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