Does mortgage preapproval affect your credit score?

How mortgage preapproval affects your credit score

When you apply for a mortgage, lenders need to verify your finances to ensure you meet their eligibility requirements and can afford to repay the loan. They will evaluate your income, employment history, and your credit profile.

To get an accurate picture of your borrowing history, the lender will perform a hard credit pull, which gives them access to your full credit report from the credit bureaus.

When a lender initiates a hard inquiry, it typically reduces your credit score temporarily by less than 5 points. While these inquiries can remain visible on your credit report for up to 2 years, they generally only affect your credit score for about 12 months.

When it comes to maintaining good credit, preapprovals have much less of an impact than paying your bills on time and maintaining a low credit utilization ratio. If your credit score is below your lender’s eligibility requirements, there are ways to repair your credit over time to get the score you need to buy a house.

How multiple lender inquiries affect your credit score

It’s a wise idea to shop around and compare mortgage rates and loan terms. However, you might be concerned that applying with several lenders will result in multiple hard inquiries and significantly damage your credit score.

Fortunately, the major credit scoring models are designed to accommodate smart rate shopping. When you apply for a mortgage, multiple mortgage inquiries that occur within the same 45-day window are grouped into a single hard inquiry for scoring purposes. This means you can apply for preapproval with several lenders during that timeframe, and your credit score will only dip slightly from a single hard inquiry.

This built-in grace period lets you explore your mortgage options without risking your credit.

How does mortgage preapproval work?

Mortgage preapproval is a two-step process. Submit your financial documents, and if you meet your lender’s requirements, you receive a preapproval letter.

Submitting your financial documents

You can expect to be asked for the following financial documents:

• Your 2 most recent bank account statements
• Your 2 most recent paycheck stubs
• Last 2 years of tax returns
• Last 2 years of W-2s
• A list of active debts
• Any investment account or retirement account statements

After your lender has received all your financial documents, they will run a hard inquiry on your credit report to check your credit score.

Receiving your preapproval letter

The lender will determine your ability to repay a mortgage and what monthly payment you can afford. From there, they'll tell you the maximum loan amount they're willing to extend and the terms.

This information is included in an official preapproval letter and is given to you, either online or in print. Keep in mind that your mortgage preapproval will have an expiration date. You can expect your preapproval to be valid for 60 – 90 days.

Having a preapproval letter on hand is a major advantage. First, it tells you how much you can afford to spend on a home. Second, when sellers see that you’ve been preapproved for a mortgage, they’ll have more confidence that the sale will go through, giving you a competitive advantage over buyers without preapproval.

Hard inquiries vs. soft inquiries

As you navigate the home buying process, you will likely encounter two types of credit pulls:

• Hard inquiry. A comprehensive check of your credit report by a lender is triggered when you formally apply for a loan. It requires your authorization, can temporarily reduce your score by a few points, and will stay on your credit report for up to 2 years.
• Soft inquiry. A preliminary review of your credit file is often used for background checks or prequalification. A soft credit pull does not affect your credit score at all and can stay on your report for up to 2 years, though only you can see it.

Hard inquiries and soft inquiries are weighted differently. When assessing your overall eligibility during the loan approval process, lenders place heavy emphasis on your consistent payment history and debt-to-income (DTI) ratio, rather than just a brief credit check.

If you are looking to boost your numbers, you can learn how to repair credit, understand exactly what credit score is needed to buy a house, and familiarize yourself with DTI standards.

Getting Rocket Mortgage preapproval

If you’re ready to start house hunting, your Rocket Mortgage preapproval options include:

• Prequalified approval. With this option, you won’t need to provide any documents. This type of approval is based only on self-reported information about your income and assets.
• Verified Approval Letter. Verified Approval requires a full verification of your income and assets, along with a hard credit pull. This option helps strengthen your offer and gives you a more reliable indicator of how much you can borrow.¹

If you’re ready to get started, here are the steps you can take to get preapproved:

1. Review your finances. Before applying for preapproval, review your finances to ensure you meet the eligibility requirements. Check your credit score and calculate your DTI by adding up your monthly debt payments and dividing the sum by your gross monthly income.
2. Collect your documentation. You can help expedite the preapproval by gathering your pay stubs, bank statements, W-2s, and tax returns in advance.
3. Submit your preapproval application: If you're ready to get the ball rolling, you can start the preapproval process with Rocket Mortgage today.
4. Get your letter: Your preapproval letter will indicate how much Rocket Mortgage expects to qualify you to borrow and can be downloaded so you can share it with agents and sellers.

It’s a good idea to compare mortgage rates and explore different home loan options before deciding on a lender.

FAQ

Here are answers to some frequently asked questions about mortgage preapproval.

Is it better to be preapproved or prequalified?

Preapproval and prequalification tell you how much a lender is tentatively willing to lend you. Though sometimes used interchangeably, preapproval carries more weight because it requires a lender to pull your credit and verify your finances. Prequalification is often based on self-reported information.

What credit bureau does Rocket Mortgage use?

Rocket Mortgage typically uses a tri-merge credit report. This means data is pulled from all three major credit bureaus – Experian^®, Equifax^®, and TransUnion^® – to get the most accurate and comprehensive view of your credit history.

What happens if my preapproval is rejected?

If your preapproval application is denied, it likely means that you don’t meet eligibility requirements. Lenders are required to tell you why you were not approved in what is known as an adverse action letter. Try not to be discouraged or give up on your homeownership goals. Taking actionable steps, such as paying down debt and boosting your credit score, can help you get approved in the future.

The bottom line: Preapproval has a minor impact on credit

While getting preapproved for a home loan does involve a hard credit inquiry that can slightly lower your credit score, the impact is minor and temporary. That small dip can be well worth it for the advantage a preapproval letter gives you in a competitive housing market. A preapproval letter can also help you set your house-hunting budget. By shopping for rates within a narrow window, you can protect your credit score while taking the next big step in your home buying journey.

If you are ready to take the next confident step toward homeownership, get started on your preapproval today.

¹ Participation in the Verified Approval program is based on an underwriter's comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage's control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.