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We’ve all been told that it’s not a good idea to have too many lenders inquiring into your credit score at once. It can put a “ding” on your credit reports and make you look less attractive to mortgage lenders. The standard mortgage process, though, makes it hard to avoid credit inquiries.
What Are Mortgage Pre-Approvals?
Most real estate agents won’t work with you unless you have a letter of pre-approval in hand. Getting a pre-approval for a new mortgage means actually applying for the mortgage, turning in documentation such as tax returns, pay stubs, W-2s, and letting the potential lender run a credit check on you. If each credit bureau gives you a clear bill of health, 700 score usually, lenders will agree in writing to loan you a certain amount of money if you request it within a specified number of days (usually 90). Note that being pre-approved by a lender does not obligate you to use that lender.
Mortgage Pre-Approvals Problems
Sometimes you run into problems even if you have a mortgage pre-approval letter. For instance, the ninety days may expire without you finding a home you want to buy. This means you’ll have to talk the lender into validating the letter for another set time period, or you’ll have to go through the pre-approval process all over again.
There is also the possibility that you will find a house you like, but you will change your mind about working with the lender who originally pre-approved you. This means another loan application and another credit check.
Credit Bureau Scoring
Credit bureaus use a subtle formula that they don’t publicize how they crunch your credit history down into a single credit score. One of the things that can cost you points on your credit score is to have a bunch of inquiries coming in very close to each other. So, should you worry about what mortgage pre-approvals will do to your credit reports? Probably not.
The “Ding” for One Inquiry is Very Small
The most a single inquiry on your credit report will cost you is five points. Often, your score, which can range from 300 to 850, will suffer even less than that. Unless you are seeking a new mortgage and are right on the cusp between a good credit score and a fair credit score, five points shouldn’t make any difference in your loan terms.
Making the Mortgage Process Easier
All of the credit bureaus understand the complex timing of getting a mortgage. Therefore, they have instituted measures to avoid reflecting pre-approval inquiries on credit reports. For instance, if you are shopping around for the best rate, and several mortgage companies make credit inquiries about you within 45 days of each other, all of those inquiries will be bundled into a single event with a miniscule effect on your credit report. Your credit report also does not include any credit inquiries made within 30 days prior to your loan application.
It is, therefore, nearly impossible that the mortgage process of pre-approval will cause enough damage to your credit score to hurt your mortgage terms, so don’t worry if your real estate agent asks to see your letter of pre-approval. Getting pre-approved for the mortgage you want won’t hurt you.
About David Hall