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.
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 myFICO.com. 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.
- Jupiterimages/Photos.com/Getty Images
- What Affects Your Credit Score Negatively?
- What Is an I1 Credit Score?
- Ways to Boost My Credit Score
- Ways to Fix Your Credit Score
- How to Refinance With a Low Credit Score
- How Long Does It Take to Fix Your Credit Score?
- Does Paying During a Grace Period Affect the Credit Score?
- Will Not Paying Rent Affect a Credit Score?
- How to Establish Credit After Having Judgments
- Can My Spouse's Credit Affect My Score?