Does Mortgage Prequalification Affect Your Credit Score?

How Does Mortgage Prequalification Work?

A mortgage prequalification can be a good initial step when you're looking to buy a home. The process varies by lender, but you should expect to be asked for some basic information about your financial situation. For example, a lender might want to know about your income, your monthly bills, how much you've saved for a down payment and how much you want to borrow.

Some lenders may also assess your credit with a soft inquiry—a type of credit check that doesn't impact credit scores—or ask for your estimated credit score range. You can get a free FICO^® Score^☉ 8 from Experian to use as an approximation, although mortgage lenders tend to use older FICO^® Score models.

Understanding your finances and credit helps a lender determine the loan amount you can afford to pay back and the risk you present as a borrower. Based on the information they see, the lender can prequalify you for different types of mortgages and an estimated loan amount. You may also receive a prequalification letter, which you can share with home sellers and real estate agents to show that you'll likely be able to buy a home.

Can a Mortgage Prequalification Affect Your Credit?

As long as the mortgage prequalification only asks you to share an estimated credit score, or the lender checks your credit with a soft pull, your credit won't be affected.

However, because lenders generally don't verify your information for mortgage prequalification, it may only provide you with a rough estimate. If you're ready to make a move and show you're serious, you could try to get preapproved for a mortgage instead.

Mortgage preapprovals can be different than prequalifications. They tend to be more rigorous—similar to the actual mortgage application process—and require verification documents, such as copies of pay stubs, bank statements and tax returns. Mortgage preapproval can also require a hard credit check, which means getting preapproved for a mortgage may hurt your credit. You should know, however, that the credit score harm associated with a single hard inquiry, if there's any at all, will be slight and temporary.

Still, getting preapproved can be a good idea if you're ready to make an offer, as you'll have a more certain idea of the type of mortgage and amount you can qualify for with the lender. Also, in competitive housing markets, being preapproved could give you a leg up with sellers who want to accept offers from buyers they know can follow through on the offer.

(Know that some lenders sometimes use the terms preapproval and prequalification interchangeably, and you might not get what you expect from a preapproval. If a lender provides a preapproval without verifying the information you shared or checking your credit, it may be less certain and carry less weight than one that considers a detailed financial picture.)

How to Get Your Credit Ready for a Mortgage

In the months leading up to your home purchase, you could take the opportunity to work on improving your credit. Your credit reports and scores can impact your ability to get a mortgage and your mortgage's interest rate, and you want to be in the best position possible. Here are a few things you can do to prepare:

• Check your credit. If you haven't done so already, check your credit scores to know where you stand. Also, review your credit reports from all three credit bureaus for factors that may be dragging down your scores. Past-due accounts and accounts in collections can have a big impact on your score, so do everything you can to avoid missing payments and to get caught up ASAP if you do. If you have any charge-off accounts on your report, take steps to address them.
• Pay down your credit card balances. Your credit utilization, which measures how your revolving account balances compare to their credit limits, is another important scoring factor. Paying down revolving balances, such as credit card debt, can lower your utilization rate, which can help your credit scores. Even if you pay your credit card bill in full each month, your balance may be reported at the end of your statement period and result in a high utilization rate. Making payments before the end of your billing period can help you keep your credit utilization low.
• Don't apply for new accounts. Opening a new credit card or loan can hurt your credit scores because it can lower your average age of accounts and lead to a hard inquiry. New accounts can help you build credit if you're making payments on time, and these short-term setbacks generally aren't a major concern. However, it may be best to avoid opening new accounts in the months leading up to your mortgage application.
• Pay every bill on time. A late payment can hurt your credit scores, particularly when it first happens. While the lead up to buying a house may be hectic, make sure you don't miss any bill payments. If you don't already do so, you might want to set up automatic payments or alerts for bill due dates.

Monitor Your Credit While Shopping for a Home

While getting prequalified for a mortgage might not affect your credit scores, you want to make sure other negative marks don't hurt your credit right before you apply for such a large loan. A credit monitoring service could quickly alert you to changes in your credit reports. Experian offers free monitoring of your Experian credit report.

You may want to monitor your other two credit reports as well, because mortgage lenders may use all three of your reports and credit scores based on each report. The Experian IdentityWorks^SM Premium program has a free 30-day trial and comes with three-bureau monitoring and multiple FICO Scores for each report, including the FICO^® Score version commonly used for home loans.