How Will Applying for a Mortgage Affect My Credit?

by Emily Shuffield 01/05/2020

Preparing to buy a home is a long and stressful process for many. You’ve spent months, or even years, saving for a down payment, planning your future, and building your credit to ensure you get the best possible interest rate on your loan.

Then you find out, when getting preapproved for a mortgage, that your credit score dropped by a few points. So, what gives?

There’s a lot to understand about how credit scores affect mortgages and vice versa. In today’s post, I’m going to attempt to cover everything you need to know about how applying for a mortgage can affect your credit score so you’ll be prepared when it comes time to buy a home.

Prequalification, preapproval, and credit checks

There are a lot of misconceptions about what it means to be preapproved or prequalified for a loan. Some of it is due to the jargon that is used in real estate transactions, and some of it is just a marketing technique on the part of lenders.

So, what does it mean to be prequalified and preapproved?

The short version is that getting prequalified is a quick and easy process to determine whether you’re eligible to lend to and how much you’re likely to receive. It involves a quick review of your finances, and often includes either a self-reported or soft credit inquiry.

A “soft inquiry” is the type of credit check that employers typically use for a background check. It doesn’t affect your credit score, as you are not applying to open a new line of credit. In fact, many lenders’ process for prequalification is a simple online form that doesn’t even require a credit check. We’ll talk more about the difference between soft inquiries and hard inquiries later.

The simplicity of prequalification makes it a simple and easy way to get started. But, it isn’t always accurate in how well it predicts the type of mortgage and loan amount you can receive. That’s where preapproval comes in.

When you get preapproved for a loan you fill out an official application (you often have to pay for these). This will request documentation for your finances and assets, and will ask your approval to run a detailed credit report.


These credit reports are considered “hard inquiries” and are a vital step in getting approved or preapproved for a mortgage. However, they also, at least temporarily, lower your credit score.

Why hard inquiries lower your credit score

When any creditor, be it a bank or credit card company, is determining whether to lend to you, they want to know that you are a safe investment. To determine this, they want to know how frequently you pay your bills on time, how much you owe to other creditors, and how financially stable you are right now.

When you make multiple inquiries in a short period of time, it’s a red flag to lenders that you might be in trouble financially. Thus, hard inquiries will lower your credit score for 1 to 2 months.

Applying to multiple lenders: the silver lining

When borrowers apply for a mortgage, they often shop around and apply to multiple lenders. While it may seem that all of these hard inquiries will add up and drastically lower their credit score, this isn’t the case.

Credit bureaus take into account the source of the inquiries. If they realize that you are applying for mortgages, they will typically recognize this as rate shopping and group these applications together on your credit report, counting them only as a single inquiry. This means your score shouldn’t drop multiple times for multiple mortgage preapprovals that were made within a small time frame.

Now that you know more about how mortgage applications affect your credit score, you can confidently shop around for the best mortgage for you and your family.

About the Author
Author

Emily Shuffield

Dedication | Communication | Trust
I’m dedicated to helping my clients navigate the home buying/selling process as they shift from one chapter to another. This process isn’t just about finding a house, it’s about building a home. The people you’ll meet, the schools you’ll choose, the community you’ll join… this process is so important for so many reasons and ultimately will shape who you become. I’m committed to helping you and your family make the right decisions, provide you with industry expertise and realistic expectations to insure your story has a perfect ending.

Things that make me happy:
● Family is what I live for – Work Hard – Play Harder
● I LOVE lifting heavy things!
● Everything Outdoors: Campfires, 14ers, boating, fishing, snowboarding & the night sky.
● Bourbon Connoisseur – I love them all but a few of my favorites: Blanton’s, Basil Haden, Woodford Reserve, Knob Creek, Elijah Craig, Angle Envy and Bookers.

Little-known fact…
While I am a Colorado Native, I was extremely blessed at a very young age and had the privilege of traveling the world with my dad and sister. In fact, I have traveled to more individual countries around the world than I have states within the US.  Some countries that I have visited; Spain, Italy, Australia, Costa Rica, Scotland, Switzerland, Mexico, England and India.

Are we a good fit?
Specializing in Parker and the extended surrounding areas, I’ve helped everyone from first time home buyers to savvy investors. My goal is to take what seems to be a complicated process and transform it into a less stressful more rewarding next chapter for you and your family |
Real Estate Negotiation Expert (RENE) | Accredited Buyer Representative (ABR) |
Diamond Circle Award Winner 2018 & 2019 (qualified) | Member of the National and South Metro Denver Association of Realtors|

I’ve always said: if you can’t say it best yourself, find someone else to say it for you…
"Excellent Realtor!! Could not have found a more reliable, honest, and knowledgeable realtor. She is beyond AWESOME, wish I had another house to buy or sale I would list it with her without a doubt." -Jeremy and Natalie Huffman

Are you ready to start your next chapter? Let’s do it together!

Emily Shuffield |303-564-3021| [email protected] | www.MileHighHomesCO.com