Does a Pre-qualification Affect Your Credit?

Tight mortgage lending guidelines can make qualifying for a loan challenging. Lenders take factors such as your employment record, your income and your credit into consideration. In your mind, you meet the guidelines for a home or auto loan, but a lender may feel otherwise. This is why prequalifications are essential to the mortgage and car loan process. But before submitting a prequalification application, you need to understand how the process works and how prequalifications affect your credit.


During a prequalification, companies may perform a soft credit pull, which will not affect your credit.

What Is a Prequalification?

Prequalification is the first stage of the home and car buying process. You can visit a lender's website to find a prequalification application. This application takes your basic information, such as your name, address, telephone number, Social Security number and income. The application will also ask the amount of your outstanding debt and assets. A mortgage or auto loan lender evaluates this information, and based on the review, decides whether you're likely to be approved for a loan. Understand, however, that lenders do not verify information during the prequalification stage. Thus, a prequalification is not a loan commitment.

Does a Prequalification Affect Credit?

A prequalification will not affect your credit, as during the prequalification stage, only a soft credit pull is done. Lenders vary, and some base prequalifications solely on the information provided in the initial application and do not even conduct credit checks. But if a lender does run your credit, the prequalification will appear as a soft inquiry on your credit report.

A preapproval, which is the next step after a prequalification, is different, as this results in a hard credit pull inquiry. Since there is a connection between credit inquiries and risk, borrowers who open several accounts within a short period of time may have difficulty paying their bills. Plus, excessive inquiries can indicate financial trouble and a desperate need for credit. Because hard inquiries impact credit scores, getting preapproved with several lenders may lower your credit score and ultimately affect an approval.

How to Avoid Credit Damage

You can avoid credit damage if a lender checks your credit during the prequalification stage due to the soft credit pull. Rate shopping is common during the loan process, and it's not unusual for buyers to prequalify with multiple lenders. As long as your not actually seeking a preapproval, credit scoring systems will not penalize you for prequalifying with multiple lenders.

To avoid credit damage from multiple inquiries, complete all your preapproval applications within a short span of time, preferably within 14 days or two weeks. This is important because when you submit multiple applications within a 14-day span, they count as just one inquiry. Additionally, credit scoring systems ignore loan inquiries made within the 30 days prior to their recalculations, so that the inquiries don't hurt your new FICO score.

Additional Considerations

Some home and auto buyers mistakenly confuse a prequalification with a preapproval. The processes are very different and the terms aren't interchangeable. While a prequalification starts the loan process, the majority of home and auto loan lenders do not verify your credit and income during this process. As previously mentioned, some lenders check credit reports during the prequalification period with a soft pull, but these loan officers do not verify financial information and assets. Verification of information takes place during the preapproval stage. The lender will request your tax returns, pay stubs and bank statements. If the mortgage or auto lender did not run your credit for the prequalification, the company will run your credit for the preapproval. A preapproval letter indicates that you meet the requirements for a home or auto loan.