Homebuyers

Does Getting Prequalified or Preapproved for a Mortgage Hurt Your Credit Score?

Applying for a mortgage may seem like a Catch-22.

When you submit paperwork for a mortgage prequalification or preapproval letter, lenders look closely at your credit score to determine if you are eligible for a loan. However, when they run a hard credit check, it can temporarily ding your score.

The good news is not all credit pulls affect your score. Even when hard inquiries are made for home loans, credit scores typically only drop by a few points and may recover in as little as a few months.

And if you’re shopping around for a mortgage from different lenders, hard credit pulls are generally only counted once, provided the inquiries are made within a short window of time. That means your credit score won’t drop each time you apply for a mortgage preapproval from a new lender.

Here’s what you need to know.

The difference between mortgage prequalifications and preapprovals

When you’re getting ready to buy a home, you’ll likely run across two terms: mortgage prequalification and preapproval. They’re often used interchangeably but work very differently.

Getting prequalified for a mortgage is an early step in the homebuying process that’s less rigorous than a preapproval. Your lender does a soft pull of your credit, which doesn’t affect your score.

The lender reviews your finances, including your income, debts, and savings, and gives you a rough idea of how much you may be able to borrow.

A loan approval isn’t guaranteed, however.

By contrast, a mortgage preapproval requires more paperwork. The lender verifies your finances and reviews your documentation.

This gives buyers a better idea of how much home they may be able to afford. It may also make them more competitive in the housing market. Submitting a preapproval letter with an offer shows sellers the buyers are likely to receive financing.

Typically, this involves a hard inquiry on your credit report, which can temporarily lower your score by a few points, according to Experian.

Some lenders even use a soft pull even at the preapproval stage.

“With a soft pull, you don’t have an inquiry on your credit,” said Eva Melgarejo, a loan consultant at New American Funding in Long Beach, Calif. “[That] means your credit does not get dinged.”

How a mortgage preapproval affects your credit score

When you get serious about putting down offers on properties, you often need a preapproval letter. This can give you a competitive edge when you’re vying against multiple other buyers for the same property.

Preapprovals are typically the first step toward securing a mortgage. It’s a more stringent process that may require a hard inquiry on your credit.

A hard inquiry typically drops your credit score by no more than five points, according to Experian. Its impact on your score generally lasts for about a year. But your score may recover sooner after a few months of making consistent, on-time payments on your credit debts.

If you're shopping multiple lenders to compare rates and terms, you may be worried that each one pulling your credit will compound the damage. Fortunately, credit scoring models account for this.

FICO generally counts multiple mortgage inquiries made within a 45-day window as one for scoring purposes. VantageScore, another popular credit scoring model, considers several hard inquiries made over a 14-day period as a single inquiry.

So, if you apply with a few lenders during those periods, your credit score won’t be negatively impacted multiple times. 

Safeguard your credit by doing your loan shopping within this time window rather than spreading applications out over several months.

Why your credit score matters when applying for a mortgage

If you’re planning to apply for a mortgage soon, making sure your credit is as strong as possible may improve your approval odds and save you substantially on your home loan.

Borrowers with higher scores may qualify for more kinds of mortgages. And they often receive lower mortgage interest rates, because lenders view them as less likely to stop making their monthly payments.

“The higher your [credit] score, the more [loan] options you’re going to have,” said Melgarejo.

Protect your credit during the preapproval process

Even after you’ve been preapproved for a home loan, it’s still crucial to protect your credit. That means avoiding large purchases, when possible, or opening up additional credit cards. You also want to ensure you’re paying off your debt on time each month.

“When we are prequalifying borrowers, we’re prequalifying them based on the numbers that we see at that current time. [That’s] their paycheck, their income, as well as their [credit] score and their [debts,]” said Melgarejo. "So, if all of a sudden, they…buy furniture for their future home, and they put that on credit, well now they have more [debt.]”

That may affect their ability to qualify for the loan they were prequalified or preapproved for from their lender.

Eva Melgarejo NMLS # 1525876