Will getting pre approved for a mortgage hurt my credit

Home loan pre-approval provides lenders the ability to navigate your credit profile to know whether your profile matches their criteria for lending. Find out here how does getting pre approved affect your credit score.

Home loan pre-approval provides home loan lenders with the ability to navigate your finances and credit profile to determine whether your profile matches their criteria for lending.

As a general rule, home loan pre-approval with a sole lender does not impact your credit score. Multiple pre-approvals through different lenders at the same time however, can have negative implications on your credit score - something that should ultimately be avoided when it comes to purchasing your new home.

For buyers in the property market, home loan pre-approval is a process undertaken by lenders that determines whether your desired home loan application fits their criteria to lend you a certain amount of money. This means when the time comes for you to make an offer on a property, you are able to move forward quickly in the buying process.

The pre-approval process involves paperwork, providing your credit profile as well as proof of your income and assets.

If the lender is satisfied that you meet their lending requirements deeming you eligible, the lender will grant you conditional pre-approval to borrow up to a certain amount.

Most lenders offer conditional pre-approval for a period between three and six months.

Throughout the pre-approval process, lenders will seek to understand your current financial position in order to determine whether you are a match. Lenders will typically look at:

• Your credit profile or credit history which is a record of loans, credit cards and other credit products you may have used in the past.

• Your current financial situation, as mentioned above, including income, assets, regular expenses and how much other debt you have.

• The home loan product you intend to apply for, the amount of the loan and your overall suitability taking into account your circumstances.

Lenders will also look to see if you have any pre-existing home loan pre-approvals upon your credit profile. Every pre-approval enquiry no matter the lender, is recorded within your credit profile. This information includes the date of your pre-approval enquiry, the lender and the pre-applied amount.

Home loan lenders may be opposed to lend to someone who has made several pre-approval enquiries over recent months. However, if all your pre-approvals have the tick of approval and are recorded on your credit profile, then lenders may be satisfied with your credit standing.

There are a few key steps you can take in order to keep your credit score in shape when it comes to home-loan pre-approval including:

1. Lodge your pre-approval applications with a singular lender

2. Ensure your financial information, including credit profile, is up to date

3. Explore home loan portfolios across lenders before committing to pre-approvals to ensure the lenders meet your financial circumstances

Get pre-approved

Do mortgage brokers undertake credit checks?

When using a mortgage broker, the broker will undertake a credit check on your behalf in order to navigate the best home loan lending options for your financial circumstances.

Is home loan pre-approval a ‘hard’ enquiry?

A hard enquiry takes place when you apply for a new line of credit, such as a home loan. This means that a lender has requested your credit profile to determine how much risk you pose as a home loan borrower. Home loan pre-approval is considered a hard enquiry, due to the fact that the lender requests your financial information and credit profile to determine if your circumstances match lender specific criteria.

Can you get denied for a home loan after pre-approval?

It may seem harsh, but the reality is even after being pre-approved by lenders, your home loan can be denied. Why might this occur? Some reasons include:

• Pre-approval reaching expiry - beyond three to six months.

• Change in your financial circumstances.

• Lenders deciding to amend their lending policies.

• Changes in interest rates.

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

What You’ll Learn

Why lenders check your credit history before deciding whether to offer you credit

The impact a hard credit check (hard inquiry) has on your credit score

Differences between soft credit checks and hard credit checks

The short answer to this question is no (not really). When you apply for any new forms of credit, lenders check your credit history to get an idea of what kind of borrower you’re likely to be based on the way you’ve managed credit in the past. A track history of on-time payments, paid-accounts, and low credit balances give the lender confidence that you’re likely to manage credit well in the future.

When you complete a mortgage pre-approval form, different lenders use one of two ways to check your credit: some use soft credit checks, others use hard credit checks. So, the long answer to this question needs an understanding of both these types of credit inquiries.

What’s a soft credit check?

When a lender does a soft credit check (also known as a soft inquiry) they contact one of the three credit bureaus (Equifax, TransUnion, or Experian) to see your credit score based on previous credit inquiries. It doesn’t impact your credit score or leave a public trace on your credit history. However, if you request a copy of your credit report, you will be able to see what companies have done a soft credit check on you. If you receive a promotional letter from a bank that says you’ve been pre-approved for a new credit card, you can be sure that bank ran a soft credit check on you.

A Better Mortgage pre-approval takes as little as 3 minutes and uses a soft credit check to give you a good idea of how much you can borrow without impacting your credit score.

What’s a hard credit check?

When a lender conducts a hard credit check (also known as a hard inquiry), they review your current credit situation with 1–3 of the credit bureaus to see if you qualify for new credit. A hard credit check can be seen on your credit report by other lenders and typically reduces your credit score by 5 points. Given that credit scores range between 300 and 850, on balance, 5 points makes less than 2% difference.

Credit reporting companies recognize that many people shop around for a mortgage, so even if a lender uses a hard credit check for your pre-approval, there won’t be any further impact to your credit score if you complete multiple mortgage pre-approvals within 45 days. After 2 years, a hard credit check will drop off your credit report entirely.

What’s the difference between a soft inquiry and a hard inquiry?

Unlike soft inquiries, hard inquiries are visible on your credit history because they indicate that a lender is either actively considering offering credit to you or has just done so. A high number of hard credit inquiries on your credit report over a short period of time is cause for concern to a lender because it generally indicates that a borrower is going through financial difficulties or may be planning to make large purchases in the near future.

Get pre-approved with Better Mortgage

Everyone deserves a fair shot at homeownership or a refinance, which is why Better Mortgage works to help you save money and make the process simple, streamlined, and ultra accessible from start to finish. A Better Mortgage pre-approval takes as little as 3 minutes and doesn’t require a hard credit check.

Do pre approvals hurt credit score?

Does preapproval for mortgage affect credit?

Is there a downside to getting pre