Pre-Approval Process & Its Effect on Credit Score

Mortgage pre-approval can speed up the home-buying process.

Mortgage pre-approval can speed up the home-buying process.

Getting pre-approved for a mortgage may lower your credit score by a very few points, but it also can put you at an advantage when you're shopping for a new home. Find out what your current credit score is before deciding whether getting pre-approved makes sense for you.

Pre-Approval Defined

To get pre-approved, you formally apply for a mortgage loan before you have found a house you want to buy. The lender pulls your full credit report and analyzes your income and assets in detail to get an accurate figure of how much you can borrow. "Pre-qualified" is similar-sounding term in real estate, which simply means you've given basic information to a lender to get a more general sense of how much you can borrow. You'll still need to go through the full loan application process if you've been pre-qualified.

Credit Scores and Inquries

When you, a credit card marketer or a mortgage lender checks your credit report, it's called an inquiry. Some inquiries affect your credit score and some don't, according to When you or a company trying to market to you checks your report, it's considered a "soft" inquiry and doesn't affect your score. When you apply for credit, it's called a "hard" inquiry, which can affect your score. One exception: When you are rate-shopping for a loan and make multiple inquiries for the same type of credit in a short time span, those multiple inquiries are usually counted as a single inquiry.

How Much Effect?

Your credit score may not be affected at all by credit applications that are considered hard inquiries or you might see a point drop of up to five points, according to FICO, the company that created the credit score system. The exact impact depends on your unique credit history, including the timeliness of your bill payments, your income level, amount of existing credit, length of credit history and other factors.

Pre-Approval: Good Idea?

Consider pre-approval if your credit report is strong and you want to move fast on a purchase. If you are pre-approved, much of the mortgage loan approval process is already completed, making you more attractive to sellers who also want to move quickly. However, if you're right on the edge of being able to qualify for a good interest rate and your credit is shaky, an inquiry could bump your score down below the level at which you qualify.


About the Author

Tom Wilkowske has been writing professionally since 1984. He has written about home, gardening, food and dining, business, politics and personalities. His work has appeared in "Lake Superior Magazine," "Cabin Life," "Minnesota Monthly," the "Duluth News Tribune" and for Bloomberg News Service. Wilkowske earned a bachelor's degree at the University of Minnesota's School of Journalism and Mass Communication.

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