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Does Pre-Approval Affect Your Credit Score?

September 21, 2023 | Posted by: Matt Broom-Hall

In the journey to homeownership, understanding the impact of credit inquiries is crucial. I'm Matt Broom-Hall, a dedicated mortgage broker and First-Time Home Buyer Coach in Canada, and today I'll walk you through how credit inquiries, or credit pulls, are treated by Equifax and offer guidance on managing them effectively.


 
Impact of mortgage pre-approval on credit scores in Canada

Understanding Credit Pulls

When you apply for mortgage financing, lenders will conduct a hard credit inquiry to assess your creditworthiness, which can have a minor negative impact on your credit score. This process is essential for lenders to gauge the risk involved in granting you a loan and to accurately calculate your debt to income levels in order to find you max purchase price.

The Grace Period for Multiple Inquiries

Equifax, like other credit bureaus, realizes that prospective homeowners will shop around for the best mortgage rates. Therefore, it employs a 'de-duplication' or 'rate shopping' mechanism that considers multiple inquiries of the same type of loan within a specific timeframe (usually 14 to 45 days) as a single inquiry when calculating your credit score. This approach ensures that your credit score is minimally impacted while you're exploring your mortgage options.

Shopping for Mortgages in Canada

In Canada, the process mirrors our neighbors to the south, allowing a specific period for rate shopping without significantly impacting your credit score. However, remember that inquiries from different types of credit such as credit cards or personal loans are treated differently/separately and could have a cumulative effect on your credit score.

Practical Advice for Prospective Homeowners
Wisely Shop for Rates: Confine your mortgage rate shopping within a short period to leverage the grace period provided for multiple inquiries.

Regularly Monitor Your Credit Report: By regularly reviewing your credit report, you can ensure that all inquiries are legitimate and that your information is accurate.

Maintain Responsible Credit Habits: Responsible credit management, including timely bill payments and maintaining low credit card balances, is key to preserving and improving your credit score.

Final Thoughts

Understanding and managing credit inquiries effectively is crucial for prospective homeowners, especially first-time buyers. As your mortgage broker and coach, I am here to guide you through every step of your home-buying journey and to ensure you find the right mortgage solution tailored to your unique needs. 

To further assist you on this journey, consider joining my FREE First-Time Home Buyer's Program. I provide ongoing coaching, essential resources, and personalized support to help you navigate the complexities of buying your first home.

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