Does Pre-Qualification Affect Your Credit Score?
By Zina Kumok, Financial Health Counselor, Credit Counselor
Reviewed by Lauren Bringle, AFC®
Shopping for a major loan is an intimidating process, especially if you’ve never done it before. There are so many unique terms and considerations, it can feel like moving to a new country while still trying to learn the language.
Pre-qualification can be especially confusing. Is it the same as pre-approval? Does getting prequalified affect your credit score? Does getting preapproved affect your credit score? How do you start the process? What role does it play in getting a mortgage loan? So many questions.
Thankfully, the answers aren’t as complicated as you might assume.
What Is pre-qualification?
Pre-qualification is a process where a lender estimates how much a borrower might qualify for. The lender will ask for your income, total debt amount, credit score and total assets, then decide on a tentative number. The information is entirely self-reported and not verified by the lender.
The pre-qualification process gives you an idea of how much you can expect to be approved for, so you don't spend time looking at cars or houses you can't afford. If you don’t qualify for as much as you want, this gives you the opportunity to rectify any problems before you apply for the loan.
Pre-qualification vs. pre-approval – what’s the difference?
Many people get the terms pre-qualification and pre-approval mixed up, yet there’s a big difference.
, you provide the information and the lender takes your word for it.
involve the lender verifying the data by accessing your bank account, checking your credit score and reviewing your tax returns and pay stubs. You also have to sign a form stating that all of the information is correct. If you lie on your pre-approval form and use it to obtain a loan, you can be charged with fraud.
Typically, as long as you gave the correct information to the lender and your life hasn’t changed in any significant way, your loan status shouldn’t change from pre-qualification to pre-approval.
What role does pre-qualification and pre-approval play in getting a mortgage?
Before you contact a real estate agent or start shopping for a home
, the first thing you should do is go through the pre-qualification process. And, if you’re really serious, go through the pre-approval process as well. Many real estate sellers expect buyers to have a preapproval letter, and having one could make you a more competitive buyer.
Why? Because sellers are more willing to negotiate with you if you have proof that you can obtain financing for the purchase. Buying a home and financing a mortgage can be a lengthy process, and nobody wants to waste their time negotiating with someone who can't even qualify for a loan.
Does pre-qualification affect my credit score?
Pre-qualification doesn’t involve a credit check, so your credit score will hold steady. If you move on to pre-approval, on the other hand, the lender will do a hard inquiry
on your credit report, which could temporarily impact your credit score. Though you should only see a difference of a few points.
Still, it’s best not to start the pre-approval process until you're serious about getting a loan. It will take a year for any hard credit inquiries to stop affecting your credit score
and two years for it to be removed from the report.
You can get a pre-approval offer from either the lender you pre-qualified with or from a different mortgage lender. A pre-approval offer will lock in a rate that lasts between 60 and 90 days. Once that term expires, you'll have to fill out a new pre-approval form and suffer an additional hard credit inquiry on your credit report. (Learn how to read your credit report
When you look for a loan, you can apply with multiple lenders to get the best terms and rates. This is known as a "shopping around period," and will only count as one hard inquiry on your credit report if you get pre-approved with multiple lenders. Just be sure to get the offers within a 45-day window, as anything outside of that will count as a new, separate hard credit inquiry.
About the author
Zina Kumok is a Financial Health Counselor and Credit Counselor, certified by the National Association of Certified Credit Counselors, who writes extensively about personal finance. See Zina on Linkedin
About the reviewer
Lauren Bringle is an Accredited Financial Counselor®
with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin