Do pre-approvals hurt your credit score?

Do pre-approvals hurt your credit score?

It's important to clarify that the act of getting a pre-approval itself does not directly harm your credit score. When you apply for a pre-approval, lenders typically perform a soft inquiry, also known as a soft pull or soft credit check. Unlike a hard inquiry, which occurs when you apply for credit, a soft inquiry does not significantly impact your credit score.

Soft inquiries are visible only to you and do not affect your credit score because they do not indicate that you're actively seeking new credit. They occur when lenders or creditors check your credit for background checks, promotional offers, or pre-approvals.

The purpose of a pre-approval is to give potential borrowers an idea of the loan amount they might qualify for and the interest rates they may be offered. It allows borrowers to estimate their budget and shop around for the best loan terms without impacting their credit scores.

However, it's crucial to understand that a pre-approval does not guarantee final loan approval. The lender will conduct a rigorous assessment of your financials when you formally apply for the loan, which may include a hard inquiry. Hard inquiries have a slight negative impact on your credit score, typically reducing it by a few points.

Hard inquiries indicate that you're actively seeking new credit, and multiple hard inquiries within a short period suggest you may be a higher credit risk.

It's worth noting that the credit impact of hard inquiries is usually small and temporary. The FICO scoring model, used by many lenders, accounts for the fact that people may shop around for the best rates and loan terms. Multiple hard inquiries for a specific type of credit (e.g., auto loans or mortgages) within a short span are typically treated as a single inquiry, minimizing the impact on your credit score.

To protect your credit score while shopping for pre-approvals or loans, it's important to be mindful of the following:

1. Do your research: Start by researching lenders and their pre-approval processes. Look for lenders that offer pre-approvals with soft inquiries.

2. Limit your applications: Only apply for pre-approvals or loans when you're serious about pursuing them. Frequent applications for new credit can give the impression that you're financially desperate or a high credit risk.

3. Apply within a concentrated period: If you're planning to apply for multiple pre-approvals or loans, do so within a short period. This way, those inquiries will likely be treated as a single inquiry.

4. Monitor your credit score: Regularly check your credit score and reports to ensure there are no errors or unauthorized inquiries that could negatively impact your creditworthiness.

In conclusion, pre-approvals themselves do not hurt your credit score. Soft inquiries, which are typically used for pre-approvals, do not affect your credit score since they are only visible to you and not seen by other lenders. However, it's important to be aware that formal loan applications may involve hard inquiries, which can have a minor impact on your credit score. By being mindful of your applications and shopping within a concentrated period, you can minimize any potential negative effects on your credit score while seeking pre-approvals or loans.

Frequently Asked Questions

No, pre-approvals do not hurt your credit score. When a lender or credit card issuer sends you a pre-approval offer, they perform a soft inquiry which does not impact your credit score. Soft inquiries are only visible to you and are not reported to credit bureaus.

No, multiple pre-approvals will not negatively affect your credit score. As mentioned earlier, pre-approvals are usually soft inquiries that do not impact your credit score. However, if you apply for multiple credit products within a short period, the resulting hard inquiries can slightly lower your score temporarily.

No, a pre-approval does not guarantee that your credit application will be approved. Although it indicates that you meet the initial criteria set by the lender, the final decision is based on a thorough review of your complete application, including factors such as income verification and credit history.

The duration of a pre-approval can vary depending on the lender or credit card issuer. Pre-approvals for mortgages typically last around 60-90 days. For credit cards, the duration might be shorter, such as 30-60 days. It's best to check with the specific lender or issuer for their pre-approval validity period.

Most pre-approvals are specific to the lender or credit card issuer that provided them. You cannot typically transfer a pre-approval from one lender to another. Each lender has its own evaluation criteria and may consider different factors when approving a credit application.