Soft vs. Hard Credit Pulls : What Homebuyers Need To Know

 

Are you ready to buy a home but confused about how credit checks work in the mortgage process? Many people don't realize the impact different types of inquiries can have on their credit score. This article will clarify the difference between "soft" and "hard" pulls, helping you avoid potential pitfalls and make smart decisions as you shop for a mortgage.

Soft Pull: A Sneak Peek Without the Sting

Think of a soft pull as a casual glance at your creditworthiness. It's like window shopping – you're exploring your options without making a commitment. Soft pulls, also known as "soft inquiries" or "pre-qualification inquiries," allow lenders to get a general sense of your credit profile without affecting your credit score.
Here's what you need to know about soft pulls:

• No Impact on Your Score: Soft pulls don't affect your credit score. They provide a snapshot of your credit history without leaving a lasting mark.
• Pre-Approval Power: Getting pre-approved for a mortgage with a soft pull is a smart first step. It gives you an idea of how much you can borrow, empowering you to shop for homes within your budget.
• Privacy Protected: Soft pulls are generally not visible to other lenders, so your information remains private.
• Shop with Confidence: You can explore different loan options and compare rates without worrying about damaging your credit score.

How Soft Pulls Work: Lenders use a limited version of your credit report for a soft pull. This provides an estimate of your borrowing power without the in-depth analysis of a hard pull.

Hard Pull: The Real Deal

A hard pull, also known as a "hard inquiry," occurs when a lender performs a thorough review of your credit history. This typically happens when you formally apply for a mortgage. Hard pulls are a necessary step in the mortgage process, but it's important to understand their impact.

Here's what you need to know about hard pulls:

• Potential Temporary Dip: Hard pulls can cause a slight and temporary dip in your credit score, usually just a few points. This is because multiple hard pulls within a short period can signal higher risk to lenders.
• Final Step in the Process: Hard pulls are essential for finalizing your mortgage. Lenders need a complete picture of your credit history to make an informed decision.
• Demonstrates Commitment: A hard pull indicates to lenders that you're serious about borrowing and moving forward with the mortgage.

How Hard Pulls Work: Lenders access your full credit report from the three major credit bureaus (Equifax, Experian, and TransUnion) for a comprehensive assessment of your creditworthiness.

Why It Matters: Strategic Credit Management

• Soft Pull = Exploration: Soft pulls are your friend when you're in the initial stages of exploring mortgage options. They allow you to gather information without risk.
• Hard Pull = Action: Hard pulls are necessary when you're ready to formally apply for a mortgage. Try to limit hard pulls to a short period to minimize any potential impact on your score.

Important Tip: Opt Out of Prescreened Offers

Did you know that after a hard credit pull, credit bureaus can sell your information to third parties? This can lead to an increase in unwanted spam calls and mail. Visit optoutprescreen.com to opt out of these prescreened offers and protect your privacy.

Managing your credit wisely during the mortgage process is key to securing the best possible rates and terms. Understanding the difference between soft and hard pulls empowers you to make informed decisions and navigate the path to homeownership with confidence.

Additional Information:

• Even if you get a soft pull, a hard pull will eventually be needed for loan approval. This is because lenders need a complete and accurate picture of your credit history before they can approve you for a mortgage. However, getting pre-approved with a soft pull can help you narrow down your options and avoid unnecessary hard inquiries.
• You can limit the number of hard inquiries on your credit report by shopping around for mortgage rates within a short period of time. Lenders will typically consider multiple inquiries from the same type of lender within a 30-day period as a single inquiry.
• You can check your credit report for free once a year from each of the three major credit bureaus (Equifax, Experian, and TransUnion).  This will allow you to monitor your credit  score and identify any errors that could be affecting your creditworthiness. Visit AnnualCreditReport.com to view your credit reports. 

 

Content provided by TowneBank Mortgage for informational purposes only. The information contained herein (including but not limited to any description of lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend. TowneBank Mortgage  NMLS# # 512138. Equal Housing Lender.