Does getting pre-approved hurt your credit score? Here’s the truth

A pre-approval is often a common step to receive financial products such as credit cards, mortgages, or car loans. It is important you understand how these pre-approvals affect your score to ensure you are not compromising your financial health. This content will discuss the effects of pre-approvals on credit scores, explain soft and hard inquiries, and other tips about how to manage your credit profile correctly.

Understanding credit inquiries: Soft and hard

A credit inquiry happens when a lender or another organisation has requested to see your credit report to assess your financial behaviour. Credit inquiries fall into two categories:

1. Soft inquiries: Your credit score is unaffected by regular checks known as "soft inquiries." Soft inquiries are generally informative in nature and are not available to other creditors.
2. Hard inquiries: It stays on your credit report for up to two years, and they may lower your credit score slightly. Hard inquiries are available to other creditors who make lending decisions.

Impact of getting pre-approved for credit card

A soft inquiry is usually needed in order to solicit a pre-approved credit card offer and it does not impact your credit score. If you accept the pre-approved offer and submit a formal application for the credit card, a hard inquiry will take place, potentially affecting your credit score slightly.

Impact of getting pre-approved for mortgages and car loans

Getting pre-approved for a mortgage or auto loan will require a hard inquiry, as opposed to credit card pre-approvals. An immediate credit score drop may occur as a result. However, credit scoring models generally consider multiple hard inquiries for the same loan type within a short time span as one inquiry.

Strategies to manage credit inquiries effectively

• Limit applications: Fewer unnecessary applications you make may be better for your credit score since every application can be a hard inquiry.
• Credit report: By often checking your credit report you're verifying that all inquiries are accurate. You can limit any damage to your credit report by quickly disputing any unauthorised hard inquiries.
• Pre-qualification tools: By using these tools, you can find out what you qualify for without affecting your credit score.
• Apply in clusters: If you need to apply for more than one loan, try to make them all in a short timeframe to lessen the effect on your credit score by ensuring that each of those inquiries is treated as a single inquiry.

In conclusion, having an understanding of the difference between soft and hard inquiries can assist with the pre-approval process, protect your credit file, and increase your financial opportunities by practicing good credit management.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.