Does Mortgage Prequalification Affect Your Credit Score?

How Does Mortgage Prequalification Work?

The mortgage prequalification process may vary slightly by lender, but you should expect to be asked for some basic information about your financial situation. In general, lenders will take a look at the following details:

• Household income
• Debt-to-income ratio (DTI)
• Down payment savings
• Credit history

Understanding your finances and credit helps a lender determine the loan amount you can afford to pay back and the risk you present as a borrower.

Based on the information they see, the lender can prequalify you for different types of mortgages and an estimated loan amount. You may also receive a prequalification letter, which you can share with home sellers and real estate agents to show that you'll likely be able to buy a home.

Does a Mortgage Prequalification Affect Your Credit Score?

Mortgage prequalification doesn't impact your credit score in any way. However, lenders will typically use a soft inquiry to assess your credit history. Here's a quick refresher on the difference between soft and hard inquiries:

• Soft inquiry: A soft inquiry isn't linked to a specific application for credit, so it doesn't hurt your credit score. However, soft inquiries generally stay on your credit reports for up to two years.
• Hard inquiry: A hard inquiry involves more intent to apply for credit, so it can negatively impact your credit score, though you'll typically only temporarily lose a few points. Hard inquiries can remain on your credit reports for up to two years but only influence your FICO^® Score^☉ for one year.

Does a Mortgage Preapproval Impact Your Credit Score?

While the prequalification process can give you some basic information about your ability to borrow money, it won't give you an estimate of your loan terms.

For that, you'll need to get preapproved, which involves a deeper understanding of your financial situation and credit profile—similar to the actual mortgage application process. Mortgage preapproval also typically requires a hard credit check, but remember that the impact will be slight and temporary.

Learn more: What Is a Preapproval Letter?

Should I Get Prequalified or Preapproved for a Mortgage?

Prequalification and preapproval are both important steps in the mortgage process. However, depending on your situation and intent, you may be able to skip the prequalification stage and go straight to preapproval.

When it makes sense to start with prequalification:

• You're just starting to explore your homebuying options.
• You want a general idea of your eligibility and potential budget.
• You're not ready to commit to buying a house and don't want a hard inquiry on your credit reports.
• You want a quick affordability estimate without providing financial documents.

When it may be better to jump straight into preapproval:

• You're serious about buying a home soon.
• You want more specifics about potential loan terms.
• You're ready to submit your financial documents and undergo a credit check.
• You're actively looking for a new home.
• You want a stronger offer to stand out among other potential buyers.

How to Shop for a Mortgage Without Hurting Your Credit

Prequalification can give you some basic information about eligibility, but if you want to shop around for terms, you'll need to get preapproved with a handful of lenders.

Unfortunately, you can't avoid potential damage to your credit resulting from hard inquiries. However, you can minimize the potential impact by completing your rate shopping in a short period. More specifically, if you get preapproved with multiple lenders within a short time period (45 days with newer FICO scoring models), all of your inquiries will be combined into one for scoring purposes.

Learn more: How to Shop for a Mortgage

How to Get Your Credit Ready for a Mortgage

As soon as you start thinking about buying a home, take the opportunity to work on improving your credit. Increasing your credit score can improve not only your approval odds but also your options for a low interest rate.

Here are a few things you can do to prepare:

• Check your credit. If you haven't done so already, check your Experian credit report and FICO^® Score to know where you stand and how you can improve. You'll also want to check your other credit reports; you can get free weekly reports from all three national consumer credit bureaus (Experian, TransUnion and Equifax) at AnnualCreditReport.com.
• Pay every bill on time. A single late payment on your debt accounts can hurt your credit considerably, so it's crucial that you pay your bills on time every month. If you haven't already done so, consider setting up automatic payments or alerts for bill due dates.
• Pay down your credit card balances. Your credit utilization, which measures how your revolving account balances compare to their credit limits, is another important scoring factor. Paying down revolving balances, such as credit card debt, can lower your utilization rate, which can help your credit scores.
• Don't apply for new accounts. It's also important to avoid applying for other forms of credit while you're preparing to buy a home. Adding other debts can potentially hurt your chances of getting approved and securing favorable terms.

Monitor Your Credit While Shopping for a Home

While getting prequalified for a mortgage might not affect your credit, you want to make sure other negative marks don't hurt your credit right before you apply for such a large loan.

Throughout the homebuying and mortgage process, it's important to stay on top of your credit and address potential problems as they arise. With Experian's free credit monitoring service, you'll get access to your FICO^® Score and Experian credit report, along with real-time alerts when changes are made to your report.