Advantages of a Soft Credit Pull

Credit pulls are also referred to as credit inquiries or credit checks. There are two different types of credit inquiries: hard credit pulls and soft credit pulls.

HARD CREDIT PULL

A lender will need to do a hard inquiry of your credit before finishing the loan process. When they do this, a few things will happen:

1. Your credit score may fall slightly due to the hard inquiry being pulled.

This will stay on your credit report for around two years, so multiple hard credit pulls can be damaging to your overall score. That’s why it is good to try to only undergo this process with the lender that you are going to use.

2. You may get an onslaught of marketing from other mortgage companies.

When you apply for a mortgage, your lender will perform a hard credit pull when reviewing your application. If you don’t undergo the opt out process, your information will be shared with each of the three main credit agencies (Equifax, TransUnion, and Experian). Under the Fair Credit Reporting Act (FCRA), these companies are permitted to include your name on lists that can then be bought by other creditors or insurers. The groups buying these lists are the ones you will start to see come through your inbox with “prescreened” offers of credit.

SOFT CREDIT PULL

A soft credit pull allows borrowers to prepare for purchasing a home without having to undergo a hard pull on their credit. Soft credit inquiries are usually used for background checks. These may occur when you are going through the hiring process or when a credit card company wants to offer you specific deals you may qualify for based on credit. Soft credit pulls have a few advantages:

1. Soft credit pulls have no impact on your credit score.

Soft credit inquiries aren’t tied to specific requests for new credit and therefore don’t impact your score. They may or may not show up on your credit report, depending on the bureau.

2. Learning about your credit score early can allow you more time to iron out credit issues.

If you have a lower credit score, certain loan options may not be available to you or you may have to pay a higher interest rate. Knowing your credit score early can allow you to take necessary steps to increase your score and secure a more favorable loan and rate.

3. Your information won’t be shared so you won’t get as many telemarketing calls or spam in your inbox.

This allows you to explore your options without being inundated by marketing from other companies, which can get overwhelming.

4. A soft credit pull is the same format and credit score as a hard pull.

Undergoing a soft credit pull means you and your potential mortgage lender will have the information needed to start the mortgage process. This means that your lender can provide a loan qualification letter and you can start shopping without having to wait.

If you want to learn more about credit inquiries and instances where soft credit pulls may be used over hard credit pulls, check out this article from CreditKarma. If you want to learn more about credit in general, visit our blog Nine Credit Score Myths! You can always contact us to get in touch with an experienced Loan Officer that can answer all of your credit and home buying related questions.