If you’ve started thinking about buying a house, you’ve probably heard the term “credit score.” This number tells a bank how likely it is that you can pay back your loans, and it’s based on things like the amount of debt you have, loans you’ve had in the past, and your repayment history. The higher your score, the more likely it is that a bank will lend you money.
You’ve earned your score by taking good care of your finances, so you want to be careful about anything that might take away from it. And one thing that can subtract points from your score is a credit inquiry.
“But wait!” you say. “Wasn’t I supposed to get pre-approved for my mortgage before I start looking at houses? And doesn’t a pre-approval count as a credit inquiry?”
Good question, but when it comes to pre-approval, your credit score is safe. Here’s why.
Not All Inquiries are alike
Soft inquiries just check to see what your number is. They don’t have anything to do with a loan or line of credit. For example, you might look up your own number just out of curiosity, or someone who’s considering hiring you might do so as part of a background check. Soft inquiries don’t affect your credit score at all. In fact, we recommend checking your credit score now so you can see where you stand and have a chance to correct any errors you may find. You can check your score at www.annualcreditreport.com. It’s fast, free, and easy.
- You check your own credit
- One of your current creditors checks your credit
- A company checks your credit to see if you qualify for preapproval offers
- You get a new job and your employer pulls your credit report as part of its screening process
Hard inquiries are different. With these, a lender is checking on your financial history to decide whether to give you a loan or line of credit and what kind of rates to charge you. If you’re looking for loans or lines of credit, it tells a lender that you’re thinking of taking on more debt, which can affect how much you’ll be able to pay back on your mortgage. That’s why these kinds of inquiries can subtract from your credit score—especially if you’re applying for a lot of loans at once.
- You go car shopping and apply for financing at the car dealership and they pull a credit report on you
- You get a preapproved credit card offer in the mail and respond to the offer
- You contact your credit card company and request a credit line increase. The company pulls a fresh credit report on you to help determine if they will grant the line increase.
Pre-approvals are treated differently. First of all, you have to make an inquiry in order to get a mortgage. It’s a necessary part of the process, so credit agencies expect you to make an inquiry at this time. And lenders understand that you need to shop for the best rate, especially when it comes to a big loan like a mortgage—but in the end, you’ll only end up with one mortgage loan. Because of this unique situation, there’s a special rule that lets you apply for mortgage pre-approval at several lenders within a 45-day window. As long as your last request is 45 days or less after the first, all of your inquiries will only be counted once to avoid denting your credit score.
Should You Get a Pre-Approval?
If you’re getting close to buying a home, the answer is yes. A pre-approval gives you a good idea of how much house you can afford so you can look within the right price range. It shows sellers that you’re serious—and ready—to buy. And it helps you get all of your paperwork lined up, so once you’ve found the perfect home, you can be confident that you can get a mortgage and close on it much faster.
How do you get the ball rolling? An Amerifirst loan officer will be happy to help. We specialize in working with first-time buyers, and we can walk you through every step of the pre-approval process to make things easy.
Just remember, if you’re shopping for pre-approvals or already started the mortgage process, this is not the time to apply for car loans, store credit cards, and other lines of credit. To protect your credit score, wait until after you buy your home instead.