As if finding the perfect property wasn’t tricky enough, the mortgage application process can be stressful for many
buyers. One major cause of stress is uncertainty about how multiple applications will affect your credit score.
However, understanding the differences between prequalification and preapproval will help you understand how
shopping for a mortgage affects your credit. 

Prequalification, preapproval & credit checks

Prequalification and preapproval affect your credit in different ways. A prequalification involves a quick review of
your finances, and often includes either a self-reported or soft credit inquiry.

Preapproval, however, involves a more thorough and detailed evaluation of your financial situation. This will require
official documentation for your assets, income and bank statements. It will also include a detailed credit report
known as a hard inquiry.

Why hard inquiries lower your credit score

Any creditor, be it a bank or credit card company, wants to know you’re 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 hard inquiries in a short period of time, it can be a red flag to lenders. Therefore, your
score will drop a few points each time – but only for a period of one or two months.

The bright side

In some cases, a borrower may apply for loans through multiple lenders to compare rates and results. But won’t all
those hard inquiries hurt your credit score?

Luckily, credit bureaus pay attention to the source of the inquiries. If they realize you are applying for mortgages,
they will typically recognize this as rate shopping rather than risky financial behavior. This means you likely
won’t be penalized for multiple hard inquiries in a short period of time, as long as you’re on an obvious hunt for a
mortgage.

All the financial aspects of buying a home can seem overwhelming. However, knowing the details of how mortgage
applications affect your credit score will help you make confident decisions in your search for your dream home.