Does Bank Loan Pre-Approval Hurt Your Credit?
- Credit inquiries are simply requests for copies of your credit report. Credit inquiries originate from several sources, including prospective employers, credit card companies that send you unsolicited offers for new credit cards and mortgage lenders. Merchants with whom you have a financial relationship may periodically check your credit as well. You may check your own credit report as part of your efforts to monitor your financial health. Credit inquiries made for any reason other than to determine whether you can obtain new credit do not impact your credit score.
- If you seek pre-approval for a bank loan, the application would count as an credit inquiry; however, the typical impact to your credit score is less than five points, according to MyFICO. In shopping for a new car, or hunting for a new house or apartment, you may make multiple inquiries concerning possible loans or credit. However, multiple inquiries for the same type of loan or credit during a short period of time do not have a cumulative adverse effect on your credit. In fact, multiple inquiries for the same type of loan made within a single 30-day period generally count as a single inquiry, according to the Privacy Rights Clearinghouse, quoting information from Fair Isaac Corporation.
- Prequalification is a different process from pre-approval. Prequalification determines an estimate of the amount you may be able to borrow, but does not carry a commitment by a lender that you would be approved. With prequalification, you provide the lender with basic information such as your income and any major expenses you have. However, many lenders do not run a credit check when they conduct a prequalification process. In those cases, prequalification would not count as an inquiry, and, as a result, there would be no negative impact on your credit report.
- Because pre-approval counts an inquiry on your credit report, it is important to maximize the benefit of obtaining pre-approval while minimizing any possible negative effects. Obtain pre-approval for an amount that is sufficient to completely cover the purchase price of the home, car or other merchandise you are seeking. If you are unable to obtain pre-approval for as much a you had hoped, or if the lender declines to grant pre-approval, ask about any problem areas in your credit profile and work to improve them before making further inquiries.
