-
Difference Between Hard and Soft Credit Pull
What is the difference between a hard pull and soft pull during the mortgage loan process. I heard the hard credit pull drops the credit scores of the mortgage loan borrower. So if the borrower keeps shopping for mortgage rates with different lenders, the borrowers credit scores can plummet?
-
1 Reply
-
I understand your concern about the impact of credit inquiries on your mortgage loan application. Let me explain to you what I have found out about ‘hard’ and ‘soft’ pulls regarding their implications on credit scores:
Soft Pull:
- This doesn’t lower your credit score.
- Commonly used for pre-qualifications or pre-approvals.
- It can be carried out without your permission in most cases.
E.g., checking personal credit, offers for pre-approved credit cards
Hard Pull:
- Hard credit pulls can reduce your credit score, usually by a few points.
- You are required to authorize it (sign a consent form).
- Remains on your credit report for around two years.
- They are used when giving final approval for loans.
- When it comes to making many applications while looking for mortgage rates,
Credit Score Impact:
It is correct that hard inquiries will cause a decline in ratings. However, this effect could be more significant, often below five points per request for most individuals.
Rate Shopping Exception:
Systems that calculate ratings, e.g., FICO, recognize rate shopping as valid. Usually, multiple mortgage requests within a certain period (normally between 14 and 45 days, depending on which formula) count as one inquiry.
Time Frame:
- FICO does not consider any mortgage-related inquiries during the initial 30 days.
- Beyond that period, within 45 days, they treat them as a single inquiry.
Minimal Long-term Impact:
Though these checks may cause slight short-term decreases in ratings, their effects wear off over time.
Overall Credit Profile:
- Payment history and how much debt someone has are far more significant determinants of an individual’s score than having too many searches appear on file.
- To mitigate against negative consequences when comparing rates.
- Conduct such comparisons within a narrow range of two weeks.
- Ask lenders if they can use soft pulls instead of hard ones during the preliminary stages.
- That way, no marks are left behind at those levels where one is unlikely to proceed with the application.
- Understanding that slight drops in credit scores due to inquiries are usually offset by finding the lowest possible mortgage rates.
It would help if you remembered that while people must learn about these things, don’t let them keep you from shopping around. The amount saved over time from lower interest rates is generally much greater than any small/temporary decrease caused by multiple checks appearing on consumer reports.