Just shopping for a home could damage your credit rating. Fortunately, the damage done by mortgage preapproval usually has a marginal effect on your credit score, and potentially less damaging than shopping for other loans, such as a personal loan. You should run a report on your credit well before you start looking for a mortgage, and ask the lender about the credit rating it wants for its best rates.
Identification
Mortgage preapproval and any application for credit lowers your credit score by five or fewer points. Although one application is almost invisible, compared to the FICO scoring range of 300 to 850, multiple inquiries do an increasing amount of damage, and six or more inquiries can be damaging like a collections account or civil judgment. Inquiries impact credit scores for one year even though they appear on credit histories for two years.
Considerations
After the 2008 housing meltdown, many real estate agents require customers to have mortgage preapproval before working with them, because the real estate agent wants to know customers can afford a home, according to Lisa Scherzer of Smart Money. This means you must commit yourself to a credit inquiry regardless of whether you actually buy a home.
Rate Shopping
You should apply for a preapproved mortgage at several banks to find the lowest rate possible. The FICO scoring model allows you to apply for as many mortgages as you want within a certain amount of time, with all applications counting as a single inquiry. Depending on which formula the lender uses, the rate-shopping windows lasts between 14 and 45 days.
Be Prepared
Run a personal credit check at all three major credit bureaus for free from the Annual Credit Report website. You should not have any negative items in the past two years, such as missed payments or collection accounts. If you have any delinquent debts, contact the lender about settling the account. Also, ask the lender about its credit scoring brackets. The few points of damage by a credit inquiry can knock you into a lower bracket with a higher interest rate.
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