Does Getting Preapproved Hurt Your Credit Score? What Every New Buyer Needs To Know

Before buying a house, you might consider getting preapproved to find out how much money you can borrow for a mortgage. This optional step in the home buying process can give you the edge over other applicants when making an offer. It also, however, has the potential to impact your credit.

How much, exactly, does getting preapproved impact your credit score – and is it worth it? Let’s break down what mortgage preapproval is and how it could alter your credit during the home buying process.

What Is Mortgage Preapproval?

Mortgage preapproval is the process of working with a lender to determine how much money you can borrow for a home loan. To do this, lenders look at your financial information, including your credit score, your assets, debts and income, etc. Preapproval is not a loan guarantee, but it is a helpful tool that can give you some guidance in terms of how much house you can afford – not to mention it looks great to sellers because it verifies that you have the funds to back up your offer.

Before you buy a house, you’ll have to get fully approved, not just preapproved. For a full approval, your lender will also have to look at things specific to the home you want to buy, such as its title, appraisal value and overall condition.

What Happens When You Request Preapproval?

You will have to complete a few steps to apply for preapproval. First, you’ll have to fill out an application and submit financial information to your lender like your pay stubs, bank statements, tax returns, etc. Once you’ve sent in your documents, your lender will review your financial information and typically run a credit check on you as well. Once this is complete, you’ll typically hear back from your lender within 1  – 3 days, though it could take up to 10.

When you hear back, if you’ve been successfully preapproved, you’ll generally receive a preapproval letter than outlines your estimated loan amount and the potential interest rate that you qualify for based on your financial profile.

Getting A Loan Preapproval Can Impact Your Credit

So, how does this process impact your credit score? When a lender checks your credit to preapprove you, they perform what is known as a hard credit pull. A hard credit pull or inquiry is a credit check performed typically by a financial institution that will show up on you and any co-borrowers’ credit reports for the next couple of years. A single hard credit check is unlikely to severely damage your credit, though – in fact, it should only lower your score by a few points.

When you get a mortgage, your credit will have to be checked at some point, so getting it out of the way right away with a preapproval is not a bad idea at all. Once again, the credit check portion of preapproval shouldn’t have a significant impact on your score at all, either, unless you’ve done a great deal of hard credit pulls in a short period of time. Your score should bounce back in a few weeks or months.

The Difference Between Prequalification And Preapproval

You may have heard the terms preapproval and prequalification used interchangeably before, but these two terms actually refer to separate processes. Let’s talk about the differences between the two and how they impact your credit.

Mortgage Prequalification 

Mortgage prequalification is not the same as preapproval. It has the same goal of giving buyers a rough estimate of their buying power but doesn’t take as in-depth of a look at a buyer’s finances. Since there isn’t usually a credit check involved, a prequalification likely won’t hurt your credit at all – but it’s also less reliable than preapproval because you provide your lender with less information about your financial situation.

You might get prequalified rather than preapproved right at the beginning of your home buying journey to get an idea of what you can afford and show your agent that you’re working with a lender. For those that want to start seriously house hunting but aren’t ready to make an offer, prequalification can be a great first step. 

Mortgage Preapproval 

Mortgage preapproval takes the process a step further than prequalification. Just like getting prequalified, you provide your lender with financial information to help them get an idea of how much they would be willing to lend you. Unlike prequalification, however, your lender will do a much more thorough check of your financial background and will examine your credit history as well. As a result, when you get a preapproval letter back, the estimate of how much you could borrow and at what interest rate will be more accurate than the answer you get initially from prequalification.

Preapproval is intended more for serious buyers who are ready to start making offers and want a preapproval letter to back up their claim that they have the means to buy a home. Unlike prequalification, preapproval does impact your credit, but the impact should be so small it won’t make a difference.

The Bottom Line: Preapproval Is Worth The Credit Check

Mortgage preapproval may require a credit check, but the hard credit pull is worth it if you’re a serious buyer ready to make an offer on a house. Preapproval can give your offer an edge over others and assures sellers that you have the means to buy.

If you’re ready to buy a home, you can get started online today with Rocket Mortgage^Ⓡ and get a head start on purchasing your dream home.