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Does mortgage preapproval hurt your credit score?
When you apply for mortgage preapproval, your credit score will drop. But probably not as much as you think.
How many points do you lose? Each application for preapproval costs you around three to five points. For most borrowers, that's not nearly enough to impact your loan approval or even increase your interest rate. Furthermore, a hit to your FICO score shouldn't stop you from applying for preapproval through multiple lenders since doing so can save you as much as $1,200 a year, according to Freddie Mac.
Read more: How long does a mortgage preapproval last?
In this article:
What is mortgage preapproval, and how does it work?
As you shop around, you might notice that some lenders use the terms “preapproval” and “prequalification” interchangeably. These are two separate steps in the mortgage process, though. Generally, preapproval gives you a much more accurate idea of how much the company is willing to lend you and what interest rate it will charge. It is the step between prequalification and final loan approval.
Unlike mortgage prequalification — which is an estimate of how much you qualify for based on your self-reported information — preapproval is based on income and credit details that the lender verifies. Here's how the mortgage preapproval process works:
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Fill out a mortgage loan preapproval application.
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Submit the required documents. This usually includes W2s, tax returns, and bank statements.
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The lender takes about 10 days to pull your credit reports and review your application.
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If preapproved, you receive a preapproval letter that's good for 30 to 90 days — and sometimes longer — depending on the lender. If your preapproval time limit expires, you’ll need to apply again to receive another preapproval letter, and the lender will pull your credit again.
Learn more: What documents do I need for mortgage preapproval?
How does preapproval impact your credit score?
Each mortgage preapproval usually costs you less than five points on your credit score. Why do you lose points? Because your mortgage application involves a "hard inquiry" or a "hard pull," meaning the lender has to pull your credit reports to see if you qualify.
While hard inquiries appear on your credit reports for two years, they only impact your credit score for one year. By comparison, you can do far more severe and long-lasting damage to your credit by making missteps with debt.
For example, if you miss a payment on a credit card by 30 days or more, your score will likely see a major drop, and the missed payment will appear on your credit reports for seven years.
Fun fact: You have more than one credit score. The three major credit bureaus (Equifax, TransUnion, and Experian) each use several formulas to establish your credit score. Mortgage preapproval should have roughly the same impact on each score.
Read more: What credit score do I need to buy a house?
How to minimize damage to your credit score from preapprovals
As a home buyer, you can preserve your credit score by making the following moves.
1. Get prequalification offers
While preapproval impacts your credit score, prequalification usually doesn't. Prequalification only involves a “soft” credit inquiry, which doesn’t affect your score. So, instead of starting the home-buying process with preapproval applications, start by getting prequalified through several mortgage lenders.
Getting prequalified is a simple process that allows you to compare loan quotes and narrow down your best options. Unfortunately, more than a third of buyers skip this comparison-shopping step, but there's such a wide spread in prequalification offers that it's worth shopping around.
Dig deeper: How to prequalify for a mortgage
2. Use the rate-shopping window
If you time things right, you can apply for mortgage preapproval with several lenders and only lose a few points on your credit score. This is due to something called a "rate-shopping window."
According to FICO, the rate-shopping window is a period of 30 days when you can submit multiple applications requiring a hard credit pull for one type of loan (in this case, a mortgage), and they will only be treated as one application. In other words, you can submit as many mortgage preapproval applications as you want within a 30-day window, and you don't have to worry about damaging your credit by more than five points.
Read more: The best mortgage lenders right now
Mortgage preapproval hurting your credit score: FAQs
How many mortgage preapprovals should I get?
There's no magic number for how many mortgage preapprovals you should get. However, it's recommended that you compare preapprovals from multiple lenders, and there's evidence you can tap into major savings by comparing four or more offers when market rates are high.
Is it worth getting preapproved for a mortgage?
It's worth getting preapproved for a mortgage by several lenders since preapproval helps you compare rates to find the best loan. A preapproval letter can also give you a competitive edge over other, less prepared buyers when you’re ready to make an offer on a house.
What's a good credit score to get preapproved for a mortgage?
You need a credit score of 620 or higher to get preapproved for most mortgages. Your score for FHA and VA loans can be as low as 580. You might even be preapproved for an FHA loan with a 500 credit score if you have a minimum 10% down payment.
This article was edited by Laura Grace Tarpley.
