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Soft vs Hard Pull: Tri-Merge Credit Report
The very first step on qualifying a mortgage loan applicant is initially have a phone interview. Buying a home is the largest investment for most hard-working people and consumers may think everything can be done online without any human contact. Many steps in the mortgage process can be done via electronic communication by email or text. However, the most important step in the mortgage process is the initial phone interview between the MLO and the borrower. We will cover the phone interview more in depth and detail on a later module. In this thread, I like to limit the topic of soft versus hard credit pull and how the qualifying credit score for a mortgage is determined. Unless the borrower needs to get qualified and pre-approved NOW and right NOW, I normally will do a soft credit pull. Initially, my loan officers and I normally do a single bureau soft pull. A soft pull will not show on your credit report as a credit inquiry and it will not drop your credit scores. From there, the mortgage loan applicant and I will go over the credit tradelines on the credit report. Things I look out for is credit disputes, credit utilization ratio, potential score improvements, errors in credit report, and prepare to maximize the borrower’s credit scores to get the best rate and terms on the mortgage loan. Once the mortgage loan applicant is credit and income ready and is ready to go shopping for a home, I then run a tri-merge credit report. Lenders use the middle credit score of a tri-merge credit report to determine the qualifying credit score for a mortgage. Please read the attached guide on tri-merge credit report to determine mortgage credit score:
Tri-Merge Credit Report to Determine Mortgage Credit Score
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If there are three mortgage scores or multiple borrowers, the score used for your loan depends on the loan type, review process, and pricing rules. The highest score is not always chosen.
The Advantages of Beginning with a Soft Credit Pull
A soft credit check early in the process allows the loan officer to review your accounts, balances, and payment history for errors or issues. Addressing these may improve your score before applying for a mortgage.
A soft inquiry does not affect your credit score. Although it appears on your personal credit report, other lenders do not view it as a significant inquiry.
It is important to distinguish between a hard credit check and mortgage preapproval. A hard credit check is only the first step. Full preapproval requires a completed loan application, disclosure of income and assets, a hard credit check, and a comprehensive file review. Some lenders use “prequalification” for a preliminary review of your information. While this can help estimate a price range, it is less reliable than a fully reviewed preapproval letter when submitting a home offer.
Typical Circumstances Requiring a Hard Credit Pull
A hard credit check usually occurs when you request a preapproval letter, make an offer, or identify a property to purchase. This provides the lender with the official mortgage credit report required for your loan. Hard inquiries may cause a minor, temporary decrease in your score, depending on your credit history. Hard checks are standard in the mortgage process.
The best time for a hard inquiry is after correcting report errors, reducing balances, resolving disputes, and improving your financial standing. Do not let concerns about hard credit checks prevent you from comparing offers from multiple lenders.
According to the Consumer Financial Protection Bureau, mortgage inquiries within a 45-day period count as a single inquiry, allowing you to compare several lenders without multiple penalties. Stay focused when shopping for a mortgage. Avoid taking on new credit, such as car loans, credit cards, personal loans, or furniture financing, while comparing lenders.
Correlations Between Mortgage Scores and Online Credit Scores
Lenders often use scoring methods different from those used by credit card websites, apps, or credit monitoring services. Mortgage lenders may use specialized models for home loans, resulting in scores that differ from those available online.
Mortgage credit scoring methods are evolving.
Most lenders use the traditional tri-merge report and FICO scores, though some are testing newer models for specific programs.
Consumer credit scores are only estimates and do not determine mortgage approval. When three mortgage scores are available, lenders usually select the median score. For example, if the scores are 620, 655, and 681, the lender will use the middle score, 655. With two borrowers, selecting the score can be more complex.
What Credit Score from Which Credit Bureau Do Lenders Use
Do not assume the lender will use the highest, average, or the score you see on your own report. The choice depends on the loan type, review process, loan purpose, and lender pricing rules. For example, Fannie Mae may use a representative score for pricing, while some manually reviewed loans with multiple borrowers may use the average of the middle scores. FHA, VA, USDA, non-QM, and other lenders have their own rules. Ask your lender which score will be used for your loan.
Mortgage Credit Report: Initial Steps a Competent Loan Officer Should Take
A competent loan officer will review your credit report for disputes, high balances, inaccurately reported late payments, collections, charged-off accounts, authorized user accounts, recent inquiries, and accounts that may soon show lower balances.
Maintaining low balances is important, as high balances increase credit utilization and can lower your score, even with on-time payments.
Paying down credit card balances before pre-approval helps protect your score and improve loan options. Your score should remain stable throughout the mortgage process. Do not alter credit card accounts unless advised by your loan officer. Opening new accounts, financing purchases, or increasing balances can affect your debt-to-income ratio and raise questions from underwriters.
How to Maximize Your Credit Scores
The Consumer Financial Protection Bureau also advises against opening new credit during the mortgage application. Before agreeing to a hard inquiry, confirm with your lender whether a soft or hard pull is needed, if a single bureau report or tri-merge is required, whether the process is pre-qualification or full pre-approval, and ask about steps to minimize negative impact.
The best time for a hard credit check is when you are fully prepared. A soft inquiry beforehand can help identify items that need correction, payment, organization, or explanation before starting your mortgage search.
A formal pre-qualification is required to make an offer. At this stage, the lender will thoroughly review your file. Ensure all errors are corrected, minimize credit card balances, and seek guidance from a mortgage expert to plan your purchase with confidence.
Impact of Credit Score Changes During Mortgage Process
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Impact of Credit Score Changes During Mortgage Process
If the borrower's credit score changes during mortgage process, lenders use the higher credit scores for pricing and locking mortgage rates.
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