Does Prequalification Hurt My Credit Score
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Whether you need a loan to purchase a home or car, or youre in the market for a new credit card, youll want to take the time to see if you prequalify.
Prequalification provides consumers a way to find out what their chances are of being approved for a new loan or credit product before filling out an application form. Plus, the prequalification process wont negatively affect your the way it will once you formally apply.
The Effects Of Soft And Hard Inquiries
Before applying for a pre-approved mortgage, you should keep track of the types of inquiries you make that could affect your credit score.
“Soft” inquiries happen when you apply for a pre-approved credit card, and the lender looks up your credit history. Other situations of soft inquiries include when your current credit card company reviews your existing account or when a collections agency checks your credit report. Soft inquiries do not affect your .
However, “hard” inquiries can be reviewed by lenders from credit card companies, as well. But hard inquiries are usually reserved for bigger loan amounts such as a car loan, line of credit, or mortgage. Hard inquiries do affect your credit score, but only if there are too many of them in a short period.
The key to reducing credit score impact is to avoid applying to too many lenders at once. Applying multiple times tells lenders that you are going through financial challenges and are desperate for a loan. Keep in mind that hard inquiries are removed from your credit report after two years.
The strategy is to apply to several lenders for pre-approval within a short time versus applying to a few of them every two to three months. When you apply for pre-approval to several lenders in a two-week period, they are all merged and counted as one hard inquiry.
Document Your Income And Assets
Your lender will requiredocumentation to support the info in your loan application. This iswhat makes getting pre-approved different from getting prequalified.
Typically, your lender willrequire the following documents for mortgage pre-approval:
- Identifying documents such as a valid drivers license orSocial Security card
- Last two years W-2sand/or 1099s
- Last two years taxreturns
- Profit & Loss statement ifself-employed
- Paycheck stubs for last 30 days,if applicable
- Statements from bank accounts,retirement accounts, and other asset accounts
- Divorce decree orseparation agreement, if applicable
- Contactinformation for your landlord for last two years, if applicable
To speed up the pre-approvalprocess, it helps to have these documents in handbefore you get started.
Some lenderscan pulldocuments directly from your employer and bank, but not all. Some can also verify your incomewith the IRS, with your consent.
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Mortgage Rates Where You Live
Mortgage or refinance rates depend on different factors, including where you live. To better understand what rates you may qualify for, including what the average mortgage or refinance rate is in your area, take a look at Credit Karmas mortgage rate marketplace and our latest state-specific guides.
About the author:
Thoughts On Mortgage Pre
I am a 50 yr old woman who is coming out of a 30 yr marriage, I have a part time job that guarantees me 28-30 hours per week, I have had this one and only job, 14 months. Can you recommend any low income/first time home buyers programs in the Central Georgia area for me ?. I have good credit, low debt , and approximately 10 % down for a $55,000 for a home. Please point me in the right direction?
I am not familiar with loan programs in the state of Georgia, but perhaps contacting a local HUD-approved housing counselor might be a good starting point. Or the Georgia Department of Community Affairs. The lack of employment history could be a problem, but the more time that goes by the less thatll be a concern. Good luck!
If the 3 pre-approval letters are from three different lenders you may have a problem. If theyre all from one lender you may want to shop around a bit more and/or determine whats going with your credit and try to clean it up before reapplying to avoid the same result over and over again.
I have a question? If your pre approve for a certain amount on a new construction loan but before you sign any document you decide you want to add upgrades can the amount on the loan be change. example if the house is $240,000 but the upgrade will bump it up too $260,000?
How long does getting pre qualified take?
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What Does Mortgage Pre
One of the first steps to take when buying a home is to get a pre-approval letter for a mortgage. Although you may think its not an important step, learning what getting pre-approved means will make your house hunt much easier.
The time you spend getting pre-approved for a mortgage before browsing for homes can save you thousands of dollars down the road.
What Does Mortgage Pre-Approval Mean?
In order to buy a home, all buyers must first apply for a mortgage. Most lenders require an application fee of about $50 to pre-qualify a potential buyer. This is the first step in the process and is also known as getting pre-approved for a loan. A pre-approval letter will assure the home seller that you are serious about buying their house.
Getting pre-approved simply means that your lender has run an approved credit check and verified that you have enough income to qualify for the loan amount you said you wanted. Not all lenders use the same guidelines, so it is best to talk with an experienced mortgage professional to determine your eligibility.
How to Get Mortgage Pre-Approval ?
Although you may think its a waste of time and money, getting pre-approved for a mortgage before house hunting is a major advantage when it comes to buying a home. Making an offer on a house without being sure your loan will be approved can be a big mistake. After all, just because you find your dream home doesnt mean the bank will approve the loan to buy it.
What Is The Difference Between Pre
According to the Consumer Financial Protection Bureau, there is not much of a difference between a pre-qualified and a pre-approved offer for an auto loan. Both of these documents state that the lender is tentatively willing to lend you a certain amount of money to purchase a vehicle based on certain assumptions. Neither is a guaranteed loan offer.
Consumer credit reporting company, Experian suggests that the difference is in how the lender gets the information that they base their prequalification/preapproval decision on. According to Experian, prequalification is when the consumer provides credit information to the lender, whereas preapproval is when the lender independently determines that the consumer meets their requirements.
Its important to note that some institutions use prequalification and pre-approval interchangeably. This means that for these lenders, there is very little difference between the two in regard to requiring a credit check that can impact your credit score. However, the difference between a pre-qualified offer and a pre-approval will ultimately depend on the lenders processes and definitions.
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When Should You Get Preapproved
When you apply for preapproval, your lender will first gather some basic financial information from you and pull your credit report. In most cases, that means a hard inquiry on your credit, which could affect your credit score. Given this, you shouldn’t apply for preapproval until you’re serious about buying a home. This will both protect you from impairing your credit score unnecessarily and ensure that your preapproval is valid when you’re ready to make an offer a home-loan preapproval letter is typically only good for 30 to 60 days.
Having multiple preapproval letters from a few different lenders will only strengthen your hand. And if you get multiple inquiries for the same type of credit within a short period of time, the credit bureaus will usually treat those as one inquiry and avoid knocking your credit score.
Monitor Your Credit While Shopping For A Home
While getting prequalified for a mortgage might not affect your credit scores, you want to make sure other negative marks don’t hurt your credit right before you apply for such a large loan. A credit monitoring service could quickly alert you to changes in your credit reports. Experian offers free monitoring of your Experian credit report.
You may want to monitor your other two credit reports as well, because mortgage lenders may use all three of your reports and credit scores based on each report. The Experian IdentityWorksSM Premium program has a free 30-day trial and comes with three-bureau monitoring and multiple FICO® Scores for each report, including the FICO® Score version commonly used for home loans.
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What The Experts Say
While Lindsay is anxious to buy a larger condo, financial planner Heather Franklin doesnt feel Lindsay is in the position to take on a bigger mortgage. She really needs to bring down her personal debtboth on her line of credit and bank loanbefore she considers signing up for a bigger mortgage and all the extra associated costs of a move, says Franklin.
Rob McLister, owner of RateSpy isnt surprised that Lindsay was offered a larger mortgage loan amount by a competing bank but says Lindsays willingness to close down her untapped $29,000 line of credit could have something to do with it. If Lindsay was paying out her line of credit with the new mortgage, the underwriter might have wanted to mitigate risk by asking for the credit line to be closed, says McLister. Some lenders require account closure as a matter of policy on debt consolidations, says McLister.
In general, a strong credit profile and reasonable debt ratio are equally important if you want the best mortgage rates and terms. The best mortgage options go to those with a credit score about 700. If you score dips below 680, it gets harder to qualify for the best rates and returns.
In most cases, cancelling cards isnt a great idea. It reduces the average age of your accounts, and the credit bureaus prefer to see long-established accounts. If you have no debt, then credit utilization is not something Id worry about.
Getting Prequalified Can Reduce Unpleasant Surprises
When used properly, prequalification is a helpful tool that can reduce your chances of being surprised by a credit card rejection or help you determine the odds of being approved for a loan.
Not only does a prequalification letter give you the information you need to decide whether youd like to proceed with a formal application for a loan or credit card, but it can also be submitted with a real estate offer to show buyers youre more likely to get the necessary funding to close on the property.
Obtaining prequalification is usually quick and painless, and most importantly, it wont affect your credit score.
Need help improving your credit score but not sure where to start? !
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Why You Should Get Pre
Its always a good idea to get pre-approved before shopping for a home. Thats because the pre-approval process helps you:
- Set a budget: Youll be able to establish your price range and shop for homes within your budget, which can save you time.
- Get organized: Because youll have a lot of the paperwork gathered for the official home loan application later, this step helps you prepare for the homebuying process.
- Support your purchase offer: When youre putting in an offer, a mortgage pre-approval letter can help you stand out from other buyers, especially in a bidding war.
- Make a financial plan: If you dont qualify for a pre-approval, youll be able to find out why and create a plan to improve your finances.
Why You Need To Get Pre
Its all the time a good suggestion to get pre-approved earlier than searching for a house. Thats as a result of the pre-approval course of helps you:
- Set a finances: Youll have the ability to set up your worth vary and store for houses inside your finances, which may prevent time.
- Get organized: Since youll have lots of the paperwork gathered for the official house mortgage software later, this step helps you put together for the homebuying course of.
- Help your buy supply: While youre placing in a proposal, a mortgage pre-approval letter might help you stand out from different consumers, particularly in a bidding battle.
- Make a monetary plan: Should you dont qualify for a pre-approval, youll have the ability to discover out why and create a plan to enhance your funds.
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Which Is Right For Me
First-time homebuyers are more likely to find that getting prequalified is helpful, especially when they are establishing their homebuying budget and want an idea of how much they might be able to borrow.
Preapproval can be extremely valuable when it comes time to make an offer on a house, especially in a competitive market where you might want to stand out among other potential buyers. Again, a seller will be more likely to consider you a serious buyer because you have had your finances and creditworthiness verified.
Ready to prequalify, get preapproved or apply? Get started with the Digital Mortgage Experience.
Stay In Touch With Your Broker
Stay reachable, in case your mortgage broker has any questions about your documentation. This means avoiding vacations or business trips where you wont have access to email or phone. If you arent available, they may make assumptions about your intent, and reject your mortgage pre-approval. If you absolutely must leave town, make sure to inform your mortgage broker in advance.
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How To Opt Out Of Pre
If you prefer not to receive pre-approved credit card offers, federal law allows you to opt out for five years at a time. To do that, you can either call 888-5-OPT-OUT or visit www.optoutprescreen.com. You can also opt out of pre-approved insurance offers.
It’s also possible to opt out permanently, starting at the website above. After you make your request online, you need to fill out, sign, and return a permanent opt-out election form.
Does Rate Shopping Hurt Your Credit Score
Rate shopping is when you ask for a pre-approval more than once in a short period of time. Youre curious about what it takes to get approved for a loan with this particular lender, so you ask them to see if you can be pre-approved for a mortgage. They will perform a hard inquiry to see your credit report and check your income and get back to you with whether or not they feel comfortable approving you for a mortgage.
Rate shopping can hurt your credit score if you decide to have several banks run a hard credit check in a short amount of time . Just as with any other loan, running too many hard credit inquiries over a small period doesnt look good to the credit bureaus and they may ding your score.
However, if you have just a couple checks over lets say a few months, youll probably be okay. Or if you get two or three back to back within the pre-approval period, the credit bureaus will see that and will likely give you a break. Ideally, you really only want your credit to be checked once, but if you were to decide on a different lender, in the end, two checks wouldnt do much damage to your credit.
Pre-approval really does depend on what state your credit score is currently in, but overall, expect a hard inquiry to change your credit score very little when you keep the number of credit checks low.
How Lengthy Your Credit Score Can Be Impacted By A Standard Pre
Laborious inquiries can keep in your credit score studies for as much as two years, however the affect of them diminishes over time. FICO says it solely considers inquiries from the final 12 months when calculating your scores.
To scale back the consequences of arduous inquiries, youll be able to request pre-approvals and submit mortgage functions inside a brief window.
What Is A Mortgage Pre
If youre considering buying a house, youre probably wondering how much you can afford. The last thing you want is to fall in love with a house that ends up being out of your budget. Or even worse, to seal the deal on a house you cant comfortably afford.
A lot of online calculators claim that they can tell you how much you can afford, but for most homebuyers, what they end up qualifying for is often less than what their calculator guessed. So whats a more accurate way to figure out your budget? Getting a pre-approval letter from an actual mortgage lender.
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How Long Your Credit Will Be Impacted By A Traditional Pre
Hard inquiries can stay on your credit reports for up to two years, but the impact of them diminishes over time. FICO says it only considers inquiries from the last 12 months when calculating your scores.
To reduce the effects of hard inquiries, you can request pre-approvals and submit mortgage applications within a short window.