Are you considering buying a home? Applying for a mortgage and getting pre-approved is an important step in the home buying process. But many potential buyers are hesitant to get pre-approved because they are worried about how it will affect their credit score. In this article, we will discuss the impact of mortgage pre-approval on your credit score and provide tips on how to minimize any potential negative effects.
First, let’s understand what mortgage pre-approval entails. When you get pre-approved for a mortgage, the lender will look at your credit history, income, and assets to determine how much they are willing to lend you. This gives you a better idea of how much you can afford to spend on a home and makes you a more attractive buyer to sellers.
However, when the lender checks your credit history, it results in a hard inquiry on your credit report. This is where the concern about your credit score comes in. Hard inquiries can lower your credit score, so it’s important to understand how much of an impact it can have.
The good news is that the impact of a hard inquiry on your credit score is relatively minimal. According to FICO, the company that calculates credit scores, a single hard inquiry can lower your score by less than five points. This may seem like a lot, but it is important to keep in mind that credit scores are made up of multiple factors, and a drop of a few points is not significant in the long run.
In addition, the impact of a hard inquiry on your credit score is temporary. It will typically only affect your score for a few months, and it will completely disappear from your credit report after two years. So, even if your score does drop a bit after getting pre-approved for a mortgage, it will bounce back in no time.
So, what can you do to minimize the impact of a hard inquiry on your credit score? The first and most important tip is to limit the number of hard inquiries on your credit report. When you are shopping for a mortgage, try to do it within a short period of time. This way, all of the inquiries will be treated as one, and your score will only be affected once. It’s also a good idea to get pre-approved by multiple lenders to compare rates and terms, but make sure to do it within a short period of time.
Another way to minimize the impact of a hard inquiry is to maintain good credit habits. This includes paying bills on time, keeping your credit card balances low, and not opening new credit accounts unless necessary. By having a strong credit history, the impact of a hard inquiry will be less significant.
In addition, you can also request a copy of your credit report to check for any errors or discrepancies. If you find any, you can dispute them and have them removed from your report, which can potentially improve your credit score. It’s always a good idea to regularly check your credit report, even if you are not applying for a mortgage.
In conclusion, mortgage pre-approval does result in a hard inquiry on your credit report, which can temporarily lower your credit score. However, the impact is minimal and can easily be bounced back from by maintaining good credit habits. By understanding how hard inquiries work and taking steps to minimize their impact, you can confidently go through the pre-approval process without worrying about your credit score.
So, if you are considering buying a home, don’t let the fear of a hard inquiry stop you from getting pre-approved for a mortgage. The benefits of knowing how much you can afford and being a more attractive buyer far outweigh the temporary and minimal impact on your credit score. Start the process today and take the first step towards becoming a homeowner.