Getting Preapproved Won't Hurt Your Credit Score

Most real estate experts would agree the first thing you should do when thinking of purchasing a home is to get pre-approved.

Getting pre-approved and/or shopping for a home loan means getting your credit pulled. There’s no way around it.

Your credit is pulled when you submit a rental application, buy a car, get a cell phone, or open a bank account. But I’m amazed by the number of people who don’t want their credit pulled when thinking of buying a home. Are you kidding me?

A home is likely your largest financial asset and the most expensive purchase you will make. How is a lender supposed to assist or advise you without the needed information to do so. We can’t advise you based on hypothetical situations and stories you may tell us. We need concrete credit information the same as the cell phone provider or your landlord.

Without looking at your credit report, most lenders won’t be able to complete a pre-qualification, much less pre-approve you to purchase a home.

When you grant a lender permission to pull your scores – and, yes, they do need your permission –  this constitutes what’s known as a “hard inquiry.” Yes, a hard inquiry may ding your credit.

Typically the hit is just a handful of points. However,  the major credit bureaus also see the value of comparison shopping – and that’s why they cut homebuyers some slack.

Credit scores are not affected by multiple inquiries from mortgage, auto or student loan lenders within a short timespan. Typically, these are treated as a single inquiry and will have little impact on your credit score. The time span for this period of  shopping is 30 days.

The 30-day shopping period gives consumers time to work toward pre-approval and shop among multiple lenders. You can get a good look at their loan products, rates, terms and estimated closing costs without worrying about your credit score taking a nosedive.

It’s also good to know that lenders are not just looking a your credit score. They are looking at your overall credit history.

Don’t allow the fear of losing a couple points from an inquiry keep you from starting the home - buying or refinance process. You can always have a chat with a mortgage lender about affordability and loan terms without having a hard inquiry, especially if you’ve checked your credit scores recently and know where you stand. Remember, lenders are not only looking to check your credit score. The lender needs to review your overall credit history.

Just keep in mind that different lenders use different loan product models to get you approved, so their estimates will be just that – estimates – until you have your credit pulled. The key to minimizing the impact of hard credit inquiries is to understand what they are and how they can affect you. Information is your best protection.

Bottom Line

Shopping for a home means getting your credit pulled. You may shop amongst several mortgage brokers and lenders. If you go to a second or even a third lender a week after getting pre-approved by the first, your scores won’t take a nosedive.