How credit checks during the mortgage qualification process impact your credit score
If you’ve worked hard to build a strong credit score in preparation for buying a home, you might have some questions about how credit inquiries during the mortgage application process can impact your credit. Here are some common questions we’ll be answering in this article:
- Does pre-qualification affect credit scores?
- How does a pre-approval affect credit scores?
- Can I qualify for a home loan without harming my credit score?
- What are the general credit score requirements?
We’ll also explore different types of credit checks—soft vs. hard pulls—and how Guild Mortgage can guide you through the pre-approval and pre-qualification process while reducing both the impact on your credit and avoid unwanted solicitations. Plus, we’ll look at a few common loan programs and their credit requirements.
The difference between a soft and a hard credit inquiry
To answer if a mortgage pre-qualification or pre-approval will affect a credit score, it all comes down to how that credit check is done. Credit checks can be described as a ‘soft’ or ‘hard’ pull. Both refer to the act of gathering your credit report to review your financial history. However, one may potentially affect your score and the other may not.
A soft pull occurs when your credit report is accessed without an associated credit application, such as when a potential new employer does certain background checks or when a credit card company pre-qualifies you before approving a new account.
When it comes to homebuying, a soft pull helps you at the earlier stages of the process, revealing how much you might be able to borrow and allowing you to start budgeting for your next move. These types of inquiries won’t affect your credit score.
On the other hand, a hard pull is needed when you actively apply for credit, triggering a thorough review of your financial history by lenders. Unlike soft pulls, they can negatively affect your credit score. “But the impact is typically small, and credit scores tend to rebound within a few months if no new negative information gets added to your credit report,” according to the credit reporting company Experian.
A hard pull is also publicly available information, which invites other companies interested in selling anything from mortgages to new homeowner goods to target you with their solicitations. This can be a concern from a privacy standpoint.
How to qualify for a home loan without affecting your credit score
Guild Mortgage offers the option to use a soft pull strategy during both the pre-qualification and pre-approval phases. This means that while evaluating your financial situation, we can obtain your credit score without impacting it negatively. This approach allows you to explore your borrowing potential early in the process, and even lock in your rate, empowering you to make informed decisions without the worry of credit score dips or unwanted solicitations.
Typically, at Guild, it’s not until you’ve made the decision to move forward with your home purchase that we conduct a hard pull credit inquiry. Underwriters then use the information to thoroughly evaluate your credit, looking at your income, debt and savings, ensuring full approval for your mortgage before the closing process begins.
Credit score requirements for different types of loans
First-time homebuyers often ask what the minimum credit score is to buy a home, and while the simple answer is 540 in Guild’s case, there are different credit score requirements for different types of loans. The loan with the lowest score requirements may not be the best loan for you for other reasons. For example, the Federal Housing Administration-backed FHA loans are designed to help borrowers with lower credit scores and less down payment savings qualify for homeownership. FHA loan credit scores generally have lower requirements compared to Conventional loans.
Conventional loan credit scores usually have higher requirements. Guild’s credit minimum for Conventional loans is 620. Since Conventional loans are not guaranteed by the government, lenders pay extra attention to the borrowers’ credit and financial situation.
At Guild, we understand that everyday life may not perfectly align with your finances in preparation for your mortgage. Some need the flexibility to start and pause home shopping to accommodate their schedule. By providing a soft credit pull option, you can be empowered with the information you need to start, stop, or resume your home search without straining your credit score with multiple inquiries. Discover your borrowing potential, compare different loan options, down payment scenarios and interest rates and make a well-informed decision that suits your needs and goals. For expert guidance and support along your homeownership journey, connect with an experienced Guild loan officer.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.