Does Mortgage Preapproval Affect Your Credit Score?

Buying a house with a mortgage is the most popular way Americans finance home purchases.^[1] Getting preapproval is an important step in the process. It’s proof a lender has reviewed your finances and that you should qualify for the loan. This makes your offer stronger to sellers. 

But does getting preapproved hurt your credit score? This answer is slightly. But to be frank, “hurt” is probably too strong, as the negative impact is temporary. We’ll explain what this looks like in practice and why the advantages of preapproval outweigh this temporary inconvenience.

Why Does Mortgage Preapproval Impact My Credit?

The preapproval process consists of a lender reviewing your finances to make sure you can afford to repay the loan. To get a mortgage preapproval, you’ll need to submit supporting documentation to your lender. This typically includes pay stubs, bank statements and W-2 forms. You’ll also have to give them permission to pull your credit report.

Your credit history is important because it shows lenders how responsible you’ve been with repaying debts in the past. When they pull your credit for a mortgage application, this triggers what’s known as a hard inquiry. Hard inquiries usually have a slight impact on credit scores.

Hard credit inquiries

Inquiries are considered hard inquiries when they’re made as part of a loan application process – like for a mortgage, student loan or car loan.

Hard inquiries affect your credit score because they signal to lenders that you’re shopping for new credit. The simple fact that you’re looking for credit is noteworthy to lenders when they’re assessing your financial situation.

Soft credit inquiries

Soft inquiries happen when someone checks your credit without an accompanying loan application. In other words, you need to know your credit score, but you aren’t asking for new credit. 

Checking your own credit score results in a soft inquiry. Other examples include an apartment complex reviewing your payment history or an employer running a background check.

How Much Will My Credit Score Be Impacted?

Your credit score is a three-digit snapshot (ranging from 300 to 850) of your credit history. Credit scoring is influenced by a variety of factors, but one hard credit pull shouldn’t have a significant impact on your score.

While FICO® and VantageScore® keep the credit-scoring models they use to generate credit scores a secret, they do share the weight allotted to the different factors that make up your score: payment history, how much you owe, length of credit history, new credit and credit diversity.

Applying for new credit makes up 10% of your credit score.^[2] Your payment history (35%) and amounts owed (30%) have a far bigger impact on your overall score.

One new credit inquiry may lower your score by five points.^[3] Multiple inquiries from different types of creditors in a short period of time can have a bigger impact. Generally, a hard inquiry is more impactful if you don’t have a long payment history, or you have a low credit score.

For example, most conventional lenders prefer a credit score of 620 or higher to qualify for a mortgage.^[4] If your current credit score is teetering around 620, losing five points may have more of an impact than if you’d a higher credit score.

How long will my credit score be impacted by preapproval?

Hard inquiries stay on your credit report for 2 years, but typically only affect your score for 1 year. Assuming that you continue to pay your bills and use your credit responsibly, your credit score will go back up much sooner. For most borrowers, the impact of a single inquiry is minimal after a few months.

If you’re working with different lenders because you’re shopping around for the best mortgage interest rate, you may be wondering how much damage multiple preapprovals will do to your credit score. Will each preapproval take an additional five points off your score?

Well, you can rest assured because the rate shopping exception exists. And it’s a useful tool when you’re applying for multiple preapprovals.

Basically, companies like FICO® and VantageScore® can recognize when you’re shopping around for a loan and will score multiple hard inquiries as one hard inquiry (aka deduplication).

Inquiries are bundled into a single inquiry for:

• Mortgages, auto loans and student loans
• The same loan types (conventional or government-backed loans)
• Inquiries made within 14 – 45 days (depending on the credit scoring company)

Let’s say you’re working with three lenders to get preapproved, and they all make a hard credit inquiry within a week. Because the three inquiries are for mortgages, are the same loan type and happened within 14 days, they’ll count as one hard inquiry.

To make the rate shopping exception work for you, do your homework. Know what documentation each lender wants. Then, get organized. Submitting your paperwork to each lender at the same time will increase your chances of the hard inquiries being made within the same time frame, minimizing the hit to your credit score.

Should You Get a Preapproval?

The short answer is yes. Why? Because when you’re ready to look for a home, a preapproval can help:

• Give you a price range for your home purchase, so you know what you can afford
• Get you an inside track with sellers – who are more likely to accept an offer if you can show you’re serious and have a bank ready to lend you money

If you get multiple preapprovals, you can compare lenders’ offers. See what interest rates lenders are offering you, as the right rate could potentially save you thousands of dollars in interest over the life of your loan.

While it’s true that getting preapproved can ding your credit, for most borrowers, the effects are minimal and don’t last long.

If You’re Serious About Buying a Home, Get a Preapproval

When you’re ready to buy a home, a preapproval is likely the way to go. Yes, it can bring your credit score down slightly. But the pain is temporary, and the benefits of getting preapproved should outweigh the short-term impact on your credit score.