Hard Inquiries

• When it comes to credit checks, there are hard inquiries and soft inquiries. Soft inquiries are done by lenders that have already loaned money or businesses that are just running a basic check. Hard inquiries are more detailed and count in the FICO formula used to calculate the score. A pre-approval creates a hard inquiry, which is why it has the power to affect your credit score and in many cases can lower your score without any further action.
  
  

Effect on Score

• While a pre-approval can lower a score, its effects are very limited. The FICO score allocates only a small portion of its tally to credit checks, since merely checking credit is relatively minor activity. At the most, borrowers may see their scores drop between three and five points, if not less. This is rarely enough to affect the actual mortgage application process itself or to change the way that the lender approaches the borrower when offering specific terms like principal amount or rates.
  
  

Additional Factors

• A pre-approval credit check does have the ability to drop a credit score by more than five points, but this is based mostly on additional factors. For example, a borrower that tries to apply for several different types of credit without a short space of time will see a credit score drop more for a pre-approval check than otherwise. Also, having bad credit in the first place may enhance the negative effects of a credit check, especially if pre-approval is declined.
  
  

Solutions

• Pre-approval is not necessary in order to get a mortgage. Borrowers looking to purchase a home and doubtful about their credit may be able to talk with a loan officer and find a loan package that is very likely to be accepted without using a pre-approval. On the other hand, a borrower with good credit may be able to get the pre-approval letter and use it without worry, since a couple months should erase the small drop it creates.