Credit Score Basics > Does a mortgage pre-approval affect credit score?

Does a mortgage pre-approval affect credit score?

Wollit Team2 minute read · Updated 29th June 2024

Mortgage pre-approval is a crucial step in the home-buying process because it can give you a clear understanding of how much you can borrow and the maximum home purchase price you can afford.

It also doesn’t affect your credit score, at least in most cases. Here is how a mortgage pre-approval works.

What kind of credit search do lenders use for a mortgage pre-approval?

When you apply for a mortgage pre-approval, the lender usually runs only a soft credit search. This kind of search does not leave a trace on your credit file and is not visible to other lenders.

Soft credit searches are used only to assess your eligibility and provide you with a pre-approval letter outlining the terms of the mortgage, including the interest rate and maximum home purchase price.

This letter, also called a Mortgage in Principle, is not a firm offer, and it’s not binding for the lender either. It’s only meant to help you do two things:

Show sellers that you’re a serious buyer;
And prepare your application for the mortgage knowing how much you could borrow and on what terms.

However, in some rare cases, lenders may use a hard credit search for mortgage pre-approval as well. This kind of search does leave a trace on your credit file, is visible to other lenders, and, more importantly, can also temporarily lower your credit score.

This being said, you shouldn’t panic. Most lenders use only soft credit searches for pre-approval, and hard credit searches are usually reserved only for full mortgage applications.

Could a mortgage pre-approval hurt my credit score?

Since mortgage pre-approvals use soft credit searches, they have no impact on your credit score. Soft credit searches, which are commonly used for pre-approval, do not affect your credit score.

Hard credit searches, which are less common for pre-approval, can temporarily lower your credit score by a few points but usually do not have a lasting impact either.

How can I increase my chances of getting a mortgage pre-approval?

To increase your chances of getting a mortgage pre-approval, here is what you need to do:

Get a better-paying job, or consider becoming a full-time employee if you’re self-employed. A strong employment history is crucial for mortgage approvals and pre-approvals. Lenders view stable employment as a sign that you can afford to repay the mortgage. This is because a stable income provides a higher level of financial security and reduces the risk of default.
Pay off some of your existing debt. Your debt payments, including credit cards and other loans, are also important factors in mortgage approvals. Lenders assess your debt-to-income (DTI) ratio to figure out whether you can afford taking on more debt. A high DTI ratio doesn’t affect your credit score but can negatively impact your mortgage application.
Improve your credit score. Your credit score plays a significant role in mortgage pre-approvals as well. Lenders use credit scores to understand if you’re eligible for the mortgage, and to determine the interest rate and terms of the mortgage. A good credit score can help you secure better mortgage deals with lower interest rates, while a poor credit score may result in higher interest rates or even mortgage rejection.

Luckily, now there are many apps that can help you build and improve credit.

One such app is Wollit. Wollit is an app available both on Android and iOS, and it works by reporting a fixed-fee monthly subscription as a loan repayment to all three credit reference agencies. This helps you build your credit history and directly influences your credit score.

On top of this, Wollit can also report your monthly rent payment to Experian. This can add another line in your credit report that shows lenders that you’re reliable and pay your bills on time, helping you make the most of your rent while you prepare to become a homeowner.