Does Pre-Approval For Mortgage Affect Credit Score?

It is logical to have a mortgage pre-approved before starting the house-hunting search. Since you're mindful of how much you'll bear to spend on a house, you'll battle the got to buy a conspicuous house you cannot bear. Still, a few buyers stress how a preapproval may influence their credit score within the advertisement. Please see below what you should know about the impact pre-approval has on your credit score.

What Is Mortgage Pre-Approval?

When you get pre-approval for a mortgage, a lending company evaluates your assets and debt as well as your loan payability. Having that knowledge, they evaluate early on how much they could be ready to lend you.

Pre-approval helps you to estimate the maximum amount of a house loan you might be entitled to at a certain bank. It also persuasively shows house sellers that you are a committed buyer with mortgage company pre-approval.

Many real estate brokers also counsel home buyers to get pre-approval before they start looking for a house. It helps you decide on your budget limit and guarantees that your offer appeals to the vendors.

Does Pre-Approval of a Loan Affect Credit Score?

To answer the main question – no, getting pre-approved for a mortgage does not negatively impact your credit. Here's why:

Hard Inquiries Credit reports and scores an important criteria used by lenders when they assess your mortgage pre-approval application. This leads to a hard inquiry on your credit. Hard inquiries do not affect credit scores significantly.

However, it is possible to separate mortgage shopping best practices that help to make rate comparisons on the same credit score time frame without adding new hard inquiries. If all your pre-approval requests are made within that window, you should find only one inquiry made on your report per lending institution.

Certain mortgage lenders also use soft search when approving pre-approvements which do not require a hard credit check. This involves checking your application according to the income and other financial information that you give.

New Accounts Taking a new credit card or any other line of credit, tends to bring down the average age of your credit. That can hurt your credit score. However, getting pre-approved for a mortgage does not create a new tradeline in one’s credit report.

Also, there is no creation of a new account that could increase the score if you do not proceed with the mortgage. As much as pre-approval may not affect the age of your credit, there is no harm in conducting one.

Credit mix and limits increase or decrease. Occasionally, the process of getting a mortgage pre-approval contributes to the credit mix and credit limits. This sometimes occurs way before the pre-approval where the lenders agree to offer you a higher amount than what you currently have in credit. This increase in your potential borrowing capacity can offset minor scoring deductions from inquiries.

In this article, we shall look at how you could benefit from Pre-approval of your credit.

Beyond simply not damaging your credit, pre-approval can help in some ways: Beyond simply not damaging your credit, pre-approval can help in some ways:

Programs That Tell You Will Handle More Credit Having been qualified to borrow a mortgage sum that is significantly higher than the existing debts and credit limits proves that one is capable of handling more comprehensive credit facilities. This factor can work in your favor and increase your scores in the long run.

Awareness of Better Credit Management Sometimes, when a lender pre-approves an applicant but at a higher rate of interest than the applicant desired, the applicant may be encouraged to pay off his balances. It only means that the credit management of a particular individual can lead to better credit rates and credit terms in the future.

Costs, Terms, and Fees to be Paid at Closing Creditworthy lenders ensure that they quote the same interest rates and charges that they give during pre-approval when closing the loan. When you have been pre-approved for a home loan after a hard credit check is done much earlier in the process of getting a home loan your credit will not be shocked to receive a blow right before closing.

When Pre-Approval Does Impact Credit?

While pre-approval on its own doesn't hurt your credit, there are some cases where it ends up having an indirect effect.

You Pay Down Debt Some purchasers reduce the installment loan and revolving credit balances to meet the requirements of interest rate before acquiring the mortgage. This can increase their credit utilization and credit scores. However, if you reduce your debt to meet the requirement for pre-approval and do not get the mortgage, then your balances will climb again once you stop extra payments. Such an increase in balance can then decrease your scores.

Credit utilization: You open new credit accounts In broad terms, it is advisable to refrain from applying for new credit facilities and accounts when applying for a home loan. Still, some credit-seeking consumers apply for new credit cards or use installment loans to prove their creditworthiness or to pay off other accounts. New accounts can also cause a lower average age of credit history and dings for hard inquiries, which are detrimental to your credit score.

Creditors close credit accounts to cut off their consumers from credit sources by denying them the opportunity to use the credit accounts any longer. In a bid to increase their credit utilization for pre-approval, some borrowers tend to cancel their existing credit cards and other revolving accounts. This can prove counterproductive by reducing the overall limit and raising the usage levels. It also reduces your average length of credit history.

How To Protect Your Credit Score From Pre-Approval: 5 Important Tips?

If you want pre-approval but don't want it to tank your credit, keep these tips in mind.

Before doing pre-approval, it is always advisable to check your credit reports and the scores you hold. To reduce the number of hard inquiries, only apply for pre-approval from one or two lenders within 45 days. The lenders should be asked whether they provide pre-approval without pulling the credit report. Do not open or close any credit accounts when you commence the process of pre-approval. Ensure that the lender commits themselves to lock your rates and fees at closing, provided you can keep your credit standing intact. Do not wait for your mortgage approval to expire once you have been pre-approved, be ready to proceed to mortgage approval as soon as possible.

The Bottom Line

While pre-qualification or pre-approval for a mortgage doesn’t harm your credit score in any way. As long as you remain reasonable, do not get multiple hard inquiries, and open new credit accounts, you can go ahead and buy your dream home knowing what you are approved for. It is worth mentioning that pre-approval can improve the credit status and develop proper financial behaviors.

Ready to boost your credit score? Call +1 888-804-0104 now for the best credit repair services near you! Our expert team is here to help you achieve financial freedom and improve your credit. Don't wait—get started today!