Does an Agreement in Principle Affect Credit Score?

Understanding how mortgage prequalification affects your credit score is important for prospective homebuyers, especially first-time buyers and those new to the housing market.

In this article, we’ll look into the impact of prequalification on your credit, explain the difference between soft and hard credit checks, and how each can influence your score. Learn the nuances of the prequalification process, how to manage your credit effectively during this period, and what to expect.

Do I really need an agreement in principle?

An agreement in principle, also known as a decision in principle, or in some cases, mortgage prequalification, is an initial agreement from a mortgage lender stating how much they would theoretically lend you, should you decide to make a full application with them. You’re not bound to a lender when they provide you with one, and it can be a very beneficial document to have.

First, knowing the amount you could borrow will prevent you from setting your sights on a property you can’t realistically afford. Secondly, with UK estate agents becoming increasingly insistent that buyers provide a decision in principle before they submit your offer to vendors, it will also improve your buying power once you’ve found the property you love.

Soft vs hard searches – will my credit score be damaged?

So, an agreement in principle is a good idea for hopeful homebuyers, and some might say it is an essential part of the application process. Any reluctance to apply for one is generally due to a concern that credit scores will be affected, causing a knock-on effect that could potentially affect future mortgage applications.

While this is a valid concern, most lenders will only do a soft credit search to make a decision in principle. A soft search will not affect your credit record, as only the lender or yourself, if you do a soft search, will see it if they do a further search.

On the other hand, some lenders will do a hard search at this stage, which will be recorded on your credit file. While it won’t specifically state whether you passed or failed, other lenders can easily surmise the latter if you’re still looking for a willing mortgage lender afterwards.

Protecting your credit record

Whilst having a single search recently recorded on your credit record won’t necessarily affect your score or your ability to get a mortgage with another lender, multiple searches will certainly impact your score. They may put off future lenders, as it creates the appearance of desperation.

The main way you can prevent this from happening is to use a mortgage broker and ask them whether the lender performs a hard or soft check before you agree to proceed with an agreement in principle.

They’re so familiar with lender criteria that they can effectively guess which lenders will approve you before they initiate the decision in principle request, meaning you’re highly unlikely to be rejected.

You’re also unlikely to need to make multiple applications to find the best deal, as it’s incredibly unlikely that you’ll find a better deal than the broker will!

Of course, a hard search will be performed when you make the full mortgage application, and while this can temporarily dip your score, as soon as you begin to repay the loan promptly, it will bounce back quickly.