Thinking about buying a home? Maybe you’re ready to pull the trigger, like, yesterday. Or maybe it’s still a distant dream.
Either way, you’ve probably heard the term “pre-qualification” thrown around. And, even if all you know is that it’s somehow mortgage-related, you may have found yourself wondering, “does pre qualification affect your credit score?”
Pre qualification: A process in which a mortgage professional reviews certain personal financial information (which may include credit score, income estimate, monthly expenses estimate etc.). They then provide an estimate of the potential loan amount you may qualify for. A pre qualification isn’t a guarantee, commitment to lend or agreement of any kind. It just means the mortgage professional believes you could qualify for a home loan around the amount indicated if all of the information provided can be substantiated and your financial situation does not change much.
But can it hurt your credit score? It’s a great question. That’s because it’s (rightfully) drilled into potential buyers that any ding to their credit could impact their ability to qualify for a home loan.
Just imagine: you miss a payment on that one forgotten credit card. Or some old debt is sent to collections and pops back up again. It could takes months or even years to fully restore your score once resolved. Your homeownership journey could be delayed or your buying power affected.
So, does pre qualification affect your credit score in the same way? Let’s get into it:
Good news! Pre qualification typically does not affect your credit score.
That’s because, when a mortgage professional attempts to prequalifies you, they’ll likely only run what’s known as a “soft” inquiry on your credit report.
Soft inquiry: A surface-level check into your credit. mortgage professionals typically opt for a soft inquiry when you are not formally applying for a loan. Instead, soft inquiries are primarily used to screen potential loan applicants. They do not negatively impact your credit. You might also hear them called a soft pull or a soft credit check.
So, long story short: soft inquiries, including pre-qualifications, will typically not affect your credit score.
A lot of potential buyers worry that any credit check will ding their score. In reality? There’s only one specific type that will: hard inquiries.
Hard inquiries are the opposite of soft inquiries:
Hard inquiry: A more in-depth check into your credit. mortgage professionals typically opt for a hard inquiry when you formally apply for a loan. Hard inquiries can cause a temporary drop in your credit score, . You might also hear them called a hard pull or a hard credit check.
It’s critical that any consumer knows the difference between hard and soft inquiries. That’s especially true if you’re considering buying a home. Just one hard inquiry could hurt your score and potentially delay the homebuying process. Soft inquiries, on the other hand, will have no impact.
So, let’s take a look at some of the standard activities that fall into each category.
You’ll be on the receiving end of a hard inquiry when:
● Applying for a car loan
● Applying for a new credit card
● Apply for in-house financing to purchase furniture, or other home accessories
● Applying for a student loan
● Applying for a personal loan
● Applying for a mortgage loan (note: a pre qualification is not a mortgage application)
You’ll be on the receiving end of a soft inquiry when:
● Checking your credit score with your favorite online credit monitoring service
● Your employer orders an employment verification/background check
● You get prequalified for a new credit card
● You get prequalified for an insurance quote
● You get prequalified for a mortgage loan
So, your biggest takeaway from all of this? A mortgage pre qualification likely will only ever include a soft inquiry. This means that pre qualification should not negatively affect your credit.
With virtually no negative consequences, you’ll probably want to at least explore getting a pre qualification. It can seriously help you along in your homebuying journey.
Just a few of the benefits include:
● Clarity on budget. You’ll have a better idea of the amount you might be able to get approved for. This makes shopping for the perfect place so much easier. After all, nothing hurts more than falling in love with a home twice your budget…
● Differentiation. Pre qualification shows that you’re serious about buying. It can help you stand out from the crowd right off the bat.
● Problem-solving. A pre qualification can highlight any issues in your personal finances. You’ll have a chance to fix them before it comes time to formally apply.
Essentially, you can shop around for the right loan and the right mortgage professional. You could get several different pre qualifications, from a handful of different mortgage professionals. Then, compare, contrast, and pick the right one for you.
To simplify this process, think about speaking with a mortgage loan originator that works for a mortgage broker .
Mortgage broker — Unlike a bank or credit union, mortgage brokers do not use their own funds to originate the loan. Instead, they work to connect potential borrowers with the right lender and loan program and terms for their unique goals and situation. They also assist with loan paperwork, the pre-qualification process, and communication between the buyer and lender.
A mortgage broker will basically do the shopping for you. Plus, they may have even more in-depth, personalized information on your credit score, credit inquiries, and the pre-qualification process as a whole. Talk about a win-win-win.
If you take anything from this blog, let it be the fact that pre qualification typically does not affect your credit score.
So, don’t hesitate when considering this next step in the homebuying process. Go ahead and get a pre-qualification. Or two... or four!
You might gain a clearer picture of what you can afford, differentiate yourself from a sea of fellow buyers, and discover any issues that might arise when it comes time to apply well ahead of time. And the best part? Your credit will be perfectly fine.