Does Getting Prequalified for a Mortgage Hurt Your Credit?
Key Takeaways
- Getting prequalified for a mortgage can help you determine how large of a mortgage you can afford.
- During the mortgage prequalification process, you’ll provide us with key financial information, such as your monthly income, employment status and monthly debts.
- We will check your credit score, which will cause your score to temporarily fall slightly (fewer than five points).
- Mortgage prequalification is not the same as a mortgage preapproval.
Wondering how large of a mortgage loan you can borrow from a lender? A mortgage prequalification can tell you. During a prequalification, we’ll check your income, debts and credit score to estimate how much we can lend you to purchase a home or refinance an existing mortgage.
Some mortgage prequalifications, including those from Freedom Mortgage, can cause your credit score to dip. But this fall is temporary and small, typically five points or less.
It’s important to note that a prequalification is only an estimate of what you are eligible to borrow, not a guarantee.
How Mortgage Prequalification Can Impact Your Credit
During a mortgage prequalification, you will provide your lender key personal and financial information about yourself and any co-borrowers.
This will include the names, birthdates, Social Security numbers and current addresses of all borrowers; the gross annual or monthly income of borrowers; the estimated amount of money you and your coborrowers have in checking and saving accounts and investment vehicles such as IRAs and 401(k) accounts; the total amount of your recurring monthly debt payments, including the money you pay each month for your auto, student and personal loans and your minimum monthly credit card payments; and the down payment amount you plan to provide when taking out your mortgage.
Your lender won’t necessarily verify all of this information during a prequalification (but will when you actually apply for your mortgage).
Lenders will also pull your credit report and check your credit score. Some lenders use a soft credit inquiry that does not impact your credit score. Others, such as Freedom Mortgage, run a hard inquiry, which does affect your credit but is more reliable.
While a single hard inquiry will cause your credit score to dip, your score usually won’t fall by more than five points. A fall from a hard pull is also temporary[DR1.1]. If you continue to make your monthly payments on time and pay down your credit card debt, your score will recover quickly.
How much your score falls can vary based on factors such as your bill-paying history, the number of recent hard pulls of your credit and the length of your credit history.
Soft vs. Hard Credit Checks
How do soft and hard credit inquiries differ? The big difference is how these checks impact your three-digit credit score.
| Soft Credit Checks | Hard Credit Checks | |
| When It’s Used | When you check your own credit; When a lender checks your credit on its own before offering you pre-approved rates on a credit card or loan. | When you officially apply for a mortgage, other loan or credit card. |
| Credit Score Impact | No impact. | Causes a temporary fall in your credit score. It varies, but this drop is usually no more than five points. |
| Duration | There is no impact on your score with a soft credit check. | It varies, but the effect of a hard credit check typically lasts just three to six months. |
| Visibility | These checks are only visible on your credit reports to you, not to other lenders[DR2.1]. They remain on your credit reports for one to two years. | Hard inquiries remain on your credit reports for two years. [DR3.1]Other lenders and creditors can see them when they check your reports. |
| Borrower Consent | Lenders and creditors do not need your consent to perform a soft inquiry of your credit[DR4.1] if they are performing the check for account management or when preparing a preapproved offer. | You must formally apply for a loan or credit card before a lender performs a hard inquiry. You must give your consent for the lender to perform a hard credit inquiry. |
| Frequency Impact | Soft inquiries have no impact on your credit score, no matter how many lenders or creditors run them. | While a single hard inquiry causes little damage to your credit score, several inquiries for different types of credit over a short period can cause a bigger drop in your score. |
| Examples | A credit card provider might run a soft inquiry of your credit if it wants to mail you a preapproved credit card offer. Or you might check your own credit once a month, triggering a soft credit inquiry on your own. | If you apply for a new credit card or mortgage, student, auto or personal loan, lenders will perform a hard credit inquiry before approving your application. |
How Much Home Can You Afford?
Getting prequalified is a great way to estimate home prices you can afford. Begin your journey toward buying a new home today.
Get Prequalified
Prequalification vs. Preapproval Credit Impact
There is a difference between prequalification and preapproval. Prequalification is less formal, with lenders not verifying the financial information that you provide.[DR5.1]
During a preapproval, lenders will verify all of your financial information, usually requesting copies of your last two paycheck stubs, two months of bank account statements, and your last two years of income tax returns and W-2 statements. And, as mentioned above, perform a hard credit check.
Most mortgage prequalifications don’t impact your credit score because lenders only perform a soft credit check. These types of checks don’t typically cause[TH6.1] your credit score to drop.
Can Multiple Inquiries Damage Your Credit?
If you request several new credit cards or loans in a short period, your credit score could take a more significant drop. That’s because all the lenders you apply to will run their own hard credit checks. Several five-point drops from these checks will add up.
There is an exception, though: If several lenders offering the same product – such as a mortgage or auto loan—all check your credit during a short window of time, it counts as just one credit inquiry on your credit report, limiting the impact to your credit score. This protects consumers, allowing them to shop around for loans.
Here’s an example: Say you want to take out a mortgage. You might get preapproved with three different lenders so that you compare the interest rates they offer and fees they charge. This is a smart financial move. If you apply with these loans during a two-week period, the three different hard credit checks they perform will be counted as one credit check, not three, limiting the dip of your credit score.
Is Prequalification Worth the Potential Credit Impact?
Even if getting prequalified with Freedom Mortgage might cause your credit score to dip slightly, taking this step brings several benefits that outweigh this small and temporary drop. The main benefit? It helps to clarify your financial situation before you officially apply for a mortgage:
- Find problems with your credit early: If you discover during your prequalification that your credit is weak, you can take the necessary steps to improve your credit score before applying for a mortgage. Waiting until you can build a strong credit score makes sense: The higher your credit score, the higher the likelihood is of getting a competitive mortgage interest rate and monthly payment.
- Determine your budget: When you get prequalified, your mortgage lender gives you a strong estimate of how much they can lend you. This gives you a better idea of how much home you can afford. If your lender prequalifies you for a $300,000 mortgage, you won’t waste time looking at homes priced at $450,000.
- Learn about loan options: It’s smart to get prequalified or preapproved with several mortgage lenders. That way, you can compare the interest rates and fees. Comparison shopping in this way boosts your odds of saving money with the best mortgage at the lowest interest rate.
Final Thoughts: Prequalification and Your Credit Score
Getting prequalified for a mortgage helps you determine how much home you can afford while also providing insight into the strength of your credit. If you’re ready to apply for a mortgage, reach out for a prequalification from one of our experienced [TH8.1]loan officers.
A graduate of the Journalism department at the University of Illinois at Urbana-Champaign, Dan Rafter has written about mortgage lending, credit scores, insurance, real estate, and personal finance topics for more than 30 years. During this time, he’s written for publications, such as the Washington Post, Chicago Tribune, Phoenix Magazine, Mental Floss Magazine, Grit, and many others. His stories have also appeared on Bankrate.com, CreditCards.com, and WiseBread.com, among others.
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