Does Agreement in Principle Affect Credit Rating

Are you considering applying for a mortgage or loan? If so, you may have come across the term “agreement in principle”. An agreement in principle (AIP) is a preliminary agreement made by a lender to give you an idea of how much they’d be willing to lend you. However, you may be wondering if obtaining an AIP will affect your credit rating. In this article, we’ll explore the relationship between AIPs and credit scores.

An AIP is not a formal mortgage or loan offer. Instead, it’s an indication of how much a lender may be willing to lend you based on your financial background, income, and expenses. To obtain an AIP, a lender will usually perform a soft credit check, which won’t leave a trace on your credit report.

A soft credit check is a type of credit check that doesn`t impact your credit score. It’s typically used by lenders to assess your creditworthiness and determine whether or not you qualify for a loan or credit product. Soft credit checks can also be used to give you an idea of what you might be eligible for, such as an AIP.

Once you have an AIP, you can use it to make an offer on a property and show sellers that you’re a serious buyer. However, it’s important to note that an AIP is not a guarantee of a mortgage or loan offer. Lenders will still need to perform a hard credit check and assess your application in more detail before they can make a formal offer.

So, how does an AIP affect your credit rating? As mentioned, obtaining an AIP usually involves a soft credit check, which doesn’t impact your credit score. However, if you go ahead and apply for a mortgage or loan after obtaining an AIP, the lender will perform a hard credit check, which can impact your credit rating.

A hard credit check is a type of credit check that can impact your credit score. It’s typically performed when you apply for a credit product, such as a mortgage or loan. Each hard credit check can lower your credit score by a few points, so it’s best to limit the number of hard credit checks you have on your report.

In summary, obtaining an agreement in principle (AIP) usually involves a soft credit check, which won’t impact your credit score. However, if you go ahead and apply for a mortgage or loan after obtaining an AIP, the lender will perform a hard credit check, which can impact your credit rating. Therefore, it’s important to limit the number of hard credit checks you have on your report and to only apply for credit products that you’re confident you’ll be approved for. By doing so, you can help maintain a healthy credit score and improve your chances of being offered a mortgage or loan.