Does home loan pre-approval impact my credit score?

Getting pre-approval is an important step in the home loan process. Not only does it give you an idea of where you stand in a lender’s eyes, it can give you an edge over other buyers when it comes time to make an offer.

But can getting pre-approved hurt your credit score? Below, we explore some ways you can keep your credit profile in good health when seeking pre-approval.

Pre-approval is a statement provided by a lender indicating how much you would likely be able to borrow. It is conditional, temporary, and there’s no guarantee that you will eventually be granted the loan you were pre-approved for.

Pre-approval usually lasts for around three to six months. So if it’s about to expire and you haven’t yet found a home, you’ll have to re-apply or ask your lender if it can be extended. 

Having pre-approval up your sleeve lets you narrow your search to budget-friendly properties. It can also signal to real estate agents that you’re serious about buying, potentially giving you a better shot at securing the home you’re after.

Before your lender can grant you pre-approval, they will have to check your credit report for signs that you have been a responsible borrower in the past. When your lender does this, it will trigger what’s known as a ‘hard enquiry.’

A single hard enquiry won’t jeopardise your credit score, but if you rack up several over a short period of time it can certainly weaken it. 

So if you’ve applied for pre-approval with multiple lenders in the hopes of finding the best deal, you might give banks the impression that you’ve been rejected multiple times. In turn, they might be reluctant to lend to you.

• Check your credit report for mistakes before you apply

• Limit the number of applications

• Extend pre-approval instead of re-applying

If you know a lender will be combing through your credit history, it might be a good idea to request a copy of your credit report beforehand to make sure all the information listed is accurate. 

If there are mistakes (or issues that have since been resolved), you’ll need to get in contact with your bank to set the record straight. 

When it comes time to apply, one of the best things you can do is research your options thoroughly before contacting any banks or lenders. Avoid the scattershot approach and try to hone in on one or two that suit best.

And if your pre-approval period is about to expire and you still haven’t settled on a property, consider having it extended rather than re-applying. If you have to re-apply, it might be better to stick with the same lender rather than finding another one.

Once your lender has deemed you a suitable candidate and granted you pre-approval, you can start looking for a home with a clear idea of how much you’ll be able to spend.

Your to-do list will now consist of finding the right property. Once you’ve done that, you can begin the formal home loan approval process. 

Your lender will conduct a property valuation and draw up a contract of sale. They’ll also examine your finances a final time to make sure that you can still comfortably afford to service a loan.

If you’re thinking of taking out a loan but aren’t too sure where to start, visit our home loan comparison page, or browse the selection below.