Does Loan Pre-Approval Affect Your Credit Score?
What Is Getting Pre-Approved?
When you get pre-approved for a loan, a lender or loan officer reviews your financial information and determines whether you qualify for a certain loan amount. When you get pre-approved, you will have to supply your lender with a plethora of financial documents like tax returns, pay stubs, and so on so they can get an accurate picture of your financial health.
A credit score is an important factor in getting pre-approved for a loan. Many people spend many years trying to build credit and maintain a good credit score so they can qualify for a loan. When you’re getting pre-approved, your lender will run a credit check to pull your credit score.
While your credit score is not the only factor in getting your loan pre-approved - they also take into account your income, any debt you might owe, your savings and ability to make a down payment, and more - you should make sure that your credit score is in top top shape before applying. Different loan types have different credit requirements, which your lender can review with you.
Does Loan Pre-Approval Affect Your Credit Score?
When you get pre-approved for a loan, your lender must run your credit by doing what’s known as a hard inquiry. Your lender will run this hard inquiry with one of the national credit bureaus - either TransUnion, Equifax, Experian, or a combination of the three.
Credit bureaus associate hard inquiries with the acquisition of debt, and can cause your credit scores to dip slightly. However, this type of effect on your credit score shouldn’t be cause for concern. Even if your credit score goes down by a few points, this reduction doesn’t last very long. If you’re worried about having this dip on your credit report, don’t worry - it will disappear after two years.
Plus, your lender is aware that these loan pre-approval credit checks can affect your credit, so it shouldn’t prevent you from getting your loan unless you’re right on the border of the required credit score. If you’re on the cusp, talk to your lender about ways that you can boost your credit to ensure you’re free and clear for your loan.
If you have a good credit score, you shouldn’t worry about a pre-approval credit check affecting your credit score. Even if this hard inquiry does cause your credit score to dip by a few points, your credit score will quickly return to normal.
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