Does A Pre-Approval Damage Your Credit Score?

I often meet with home buyers who are in the ‘getting ready’ stage of the home buying process. At this time, they may have met with a mortgage specialist to determine if they are on the right track financially. They meet with me because they need more information about the ‘looking at homes and buying it’ part of the process.


For me, it would be much easier to gauge what kind of problems or situations the buyers would come across if I knew what kind of home they are going to be buying. Depending on what their price range is, I have a pretty good idea of what kind of home they’re going to end up with. So, it would make pre-framing the buyer’s expectations much easier if they came to me with a full pre-approval knowing what they could afford.

Kelsey: Have you gotten a pre-approval?


Buyer: No because I’m not 100% ready to buy right now and I don’t want my credit score to be affected


Kelsey: Why would having a pre-approval affect your credit score?


Buyer: Because Joe on the internet told me that every time I check my credit score it goes down! 


Kelsey: Well, Mr. Buyer… that is simply not true. Here is some real information on what affects your credit.

 

This is a regular conversation I have. There is a lot of confusion around credit. Some people don’t know what it is, what it does or how it’s built.

Let’s clear some things up.

 

What Is Credit?

Credit is made up from information about borrowing history. It is the track record of responsible credit (loans, lines of credit) management and on-time bill payment.

What is a Credit Score?

A number assigned to a person that indicates to lenders of credit the person’s ability to repay a loan. It is recorded and reported by those who provide loans and lines of credit. 

Credit is created by obtaining credit cards, car loans, mortgages and lines of credit while those providers keep a record of how well you manage the accounts and make payments.

 

So now that we know what exactly credit is and how it’s built, you should know what will damage your credit if you don’t maintain it properly.

1. Not Making Payments On Time

35% of your credit score is made up of your payment history. ALWAYS make payments on time to avoid penalty.

2. Avoiding Making Payments All Together

Completely ignoring your credit cards bills is much worse than paying late. The more payments missed, the lower your credit score gets and the closer to having the credit card shut down.

3. Having An Account Sent To Collections

Collections does major damage to your credit score. Avoid this.

4. Defaulting On A Loan

Defaulting on a loan pretty much says you give up trying to pay for the credit owed and you’re not going to bother anymore. Bad move.

5. Filing Bankruptcy

Say good-bye to any kind of credit for a minimum of 7 years. Then, have fun getting any lending institution to even consider your file.

6. High Credit Card Balances

A good rule of thumb is to always have a least half of your available credit available. Lender’s don’t like to see credit cards with high balances because it indicates the loaner is not ‘responsible.’

7. Maxed Out Credit Cards

This is even worse than a high balance credit card. A maxed out credit card hurts credit significantly and daily.

8. Closing Credit Cards That Still Have Balances

While closing the credit card brings the available credit availability to zero, the previous balance on the cards remains and makes the credit card look like it’s maxed.

9. Not Having Enough Credit

If you don’t have enough ‘lines of credit,’ your credit score will not increase. You need to have at least two means of credit. Example: credit card, car loan, line of credit or a mortgage.

10. Multiple Applications

Applying For Multiple Loans Or Checking Your Credit Score Multiple Times In A Week Or Day.

 

It’s totally fine to check your credit score for a car loan or applying for a credit card. It’s okay to check your credit score online every four months to see what your score is. But checking your credit multiple times and day or week is what brings the credit score down. Checking your credit score too frequently is not recommended.

So, if you’re wanting a pre approval for your mortgage, go ahead! Your credit won’t be affected as long as the mortgage specialist doesn’t pull your credit 16 times in row (which they will not.)

 

Contact Us

If you have any questions about getting a pre approval or you would like to chat about the ‘looking for a home stage,’ give me a call at 306-552-7047 or fill out my online contact form!

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