Do pre approvals affect your credit score?
Understanding how pre approvals impact your credit score is crucial when you’re considering making a significant purchase, such as a car or a home. A pre approval is a process that allows you to get an estimate of how much you can borrow before you start shopping for the actual item. While it might seem like a straightforward process, many people are unsure about how pre approvals affect their credit scores. In this article, we will explore this topic and provide you with the necessary information to make an informed decision.
What is a pre approval?
A pre approval is a conditional approval for a loan or credit line from a financial institution. It’s typically based on the information you provide, such as your income, employment history, and credit score. Once you receive a pre approval, you can use it to shop for the item you’re interested in, knowing the maximum amount you can borrow. This can help you avoid overspending and ensure that you don’t waste time looking at items that are out of your price range.
How does a pre approval affect your credit score?
Contrary to popular belief, a pre approval itself does not affect your credit score. When you apply for a pre approval, the lender will perform a soft credit check, which does not impact your score. This soft inquiry is similar to when you check your own credit score or when a lender checks your score to offer you a pre approval. However, the actual application for the loan or credit line, which will occur when you decide to purchase the item, will result in a hard inquiry. A hard inquiry can temporarily lower your credit score by a few points, but this effect is usually minimal and short-lived.
Precautions to take when getting a pre approval
While pre approvals are generally a positive experience, there are a few precautions you should take to ensure that your credit score remains unaffected:
- Do not apply for multiple pre approvals within a short period of time, as this can raise red flags to lenders and may cause your credit score to drop.
- Keep your pre approval active for as short a time as possible, to minimize the number of hard inquiries on your credit report.
- Only apply for pre approvals from reputable lenders, to ensure that your personal information is secure.
Conclusion
In conclusion, pre approvals do not directly affect your credit score. However, the actual application process may result in a temporary drop in your score. By following the precautions mentioned above, you can ensure that your credit score remains stable while taking advantage of the benefits that pre approvals offer. Remember to research and compare pre approval offers from different lenders to find the best terms and conditions for your needs.
