Does A Home Loan Pre-Approval Affect My Credit Score?

Your credit score is one of the key factors that lenders consider when it comes to assessing your home loan application. If you’re planning on applying for a home loan soon, it’s worth checking your score and maintaining good credit. With that said, even just applying for a pre-approved home loan could affect your credit score, even if it’s just temporarily. 

How does the pre-approval process work?

Pre-approval is one of the first steps you take in the home loan application process. It essentially provides you with a ballpark figure of how much a bank is willing to lend you based on your circumstances. While it’s not always necessary to get pre-approval, this step can give you a good idea of your borrowing capacity before you start house hunting.

Applying for pre-approval shares a number of similarities with a formal home loan application. When you apply for pre-approval, you’ll need to provide your lender with a range of information and documents to support your employment status, income, assets, debts and expenses. 

Your lender will assess all of this information to get a picture of your overall financial situation. As part of their assessment, they’ll also do a credit check. This means they’ll take a good look into your credit history to review your credit scores. Your credit score is calculated based on your borrowing and repayment history. Ultimately, the higher the number, the better the score. A high credit score is generally a good indication that you’re likely to be a reliable borrower and make your mortgage repayments on time.  

Does pre-approval affect your credit score?

When lenders check your credit score as part of the pre-approval process, they often complete a hard enquiry, which is recorded on your credit report. A hard enquiry is triggered when a lender requests access to your full credit report after you apply for home loan pre-approval. This allows your lender to review your report for details about your repayment history, credit products, credit score and more. 

Generally, when you apply for home loan pre-approval, the following information is recorded on your credit file:

• The date of the enquiry,
• The name of the lender or credit provider,
• The credit amount you applied for, and
• The reason for the enquiry. 

A single hard enquiry can drop your credit score temporarily, but the effects typically last just a few months. Plus, if you’ve already got a good credit score, you shouldn’t take too much of a hit. With that said, if you submit pre-approval applications across several different lenders, it will result in multiple hard enquiries, which can have a more significant impact on your credit score. If you have multiple applications for pre-approval over a short period of time, it can appear as if you’ve been rejected numerous times, which can be a red flag for some lenders. In fact, some lenders won’t even entertain lending to someone who has made more than one or two enquiries over a 6-month period.

How to protect your credit score

There’s nothing wrong with applying for home loan pre-approval, but there are a few steps you can take to safeguard your credit score. Here are a few tips:

• Check your score: Before submitting your application for pre-approval, it can be worth taking the time to quickly check your credit score yourself. You can easily access a free report online through providers like CreditSavvy, Credit Simple or Canstar. That way you can check for any mistakes ahead of time or take steps to improve your score before a hard enquiry is completed. 

• Research your options: Don’t just submit an application for pre-approval with the first lender you look at. Do your research to make sure their loan products actually suit your needs. If not, there are plenty of other lenders out there with their own set of home loan products. 

• Limit your applications: When it comes to lodging your pre-approval application, try to stick with just one lender. That way you won’t have to worry about multiple hard enquiries affecting your credit score. 

• Extend your pre-approval: Pre-approvals don’t last forever. In fact, most pre-approvals are valid anywhere from three to six months. So, if you’re coming up to the end of your pre-approval period, it can be worth chatting with your lender to extend your pre-approval rather than going through the hassle of applying again. Again, this helps to limit the number of applications logged on your credit file. 

Want to get a rough estimate of your borrowing capacity without submitting an application for pre-approval? Use our borrowing power calculator to get a better idea of your budget before you start the house-hunting process. In the meantime, check out our collection of blogs that cover everything you need to know about buying a home. 

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval; satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000. 

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement.

* Other third-party fees may apply. Government charges may apply. Your other lender may charge an exit fee when refinancing.