As previously discussed last week, understanding the difference between a hard pull and a soft pull on your credit is crucial. As a homebuyer, this knowledge can impact your credit score, your loan application, and even your overall financial health. At AZ Mortgage, we’re committed to helping you navigate the homebuying process smoothly, and understanding these credit checks is an essential part of that journey.
In this blog post, we’ll break down the differences between hard pulls and soft pulls, explain how each affects your credit score, and offer some tips to ensure you’re in the best position when applying for a mortgage.
What is a Hard Pull?
A hard pull (also known as a hard inquiry) occurs when a lender checks your credit report as part of their decision-making process. This type of credit check typically happens when you formally apply for a loan or mortgage. Lenders will use the hard pull to assess your creditworthiness and determine whether you’re eligible for the loan, as well as the terms of the loan.
How a Hard Pull Affects Your Credit:
- Temporary Dip in Your Score: A hard pull can cause a small dip in your credit score, typically by a few points. However, this drop is often temporary and will recover over time as long as you manage your credit responsibly.
- Visible to Other Lenders: Hard pulls remain on your credit report for up to two years, and other lenders can see them when checking your credit. Multiple hard pulls in a short period may indicate that you’re seeking a lot of credit, which could raise red flags to lenders.
- Duration of Impact: The impact on your credit score from a hard pull typically lasts for about 6 months to a year, depending on your overall credit history.
When Does This Happen?
- Mortgage Applications: When you apply for a home loan, a lender will perform a hard pull on your credit to evaluate your financial health.
- Car Loans & Credit Cards: Similar to mortgages, when you apply for other forms of credit, such as an auto loan or credit card, lenders will also conduct a hard pull.
What is a Soft Pull?
A soft pull (also known as a soft inquiry) is a less intrusive check of your credit history. It occurs when a company or lender checks your credit without affecting your score or alerting other lenders. Soft pulls are commonly used for purposes like pre-screening offers or credit card promotions.
How a Soft Pull Affects Your Credit:
- No Impact on Your Score: Unlike hard pulls, soft pulls do not affect your credit score. Your score will remain unchanged.
- Invisible to Other Lenders: Soft pulls aren’t visible to other lenders, so they won’t know that you’ve had a credit check unless you decide to tell them.
- Used for Pre-Approvals: Lenders often use soft pulls to pre-approve you for a mortgage or to give you an idea of your loan eligibility before you formally apply.
When Does This Happen?
- Pre-Qualification: When you’re just starting the homebuying process, some lenders may conduct a soft pull to pre-qualify you for a loan, helping you understand what you can afford.
- Credit Monitoring: When you check your own credit score or use a service to monitor your credit, those inquiries are also soft pulls.
How Do Hard Pulls and Soft Pulls Affect Your Homebuying Process?
During the homebuying process, both types of credit checks can play important roles:
Pre-Approval (Soft Pulls): Before you officially apply for a mortgage, lenders may use a soft pull to give you a rough estimate of your loan eligibility. This can help you determine your budget and make sure you’re shopping within your price range. It’s a great way to start the homebuying process without affecting your credit score.
Final Loan Application (Hard Pulls): When you’re ready to move forward with a mortgage application, the lender will perform a hard pull to assess your credit in-depth. This is when the lender checks your credit report to evaluate your financial history and finalize the terms of your loan. Be aware that your credit score may dip slightly after a hard pull, but as long as you have a good score and continue managing your finances well, it shouldn’t cause long-term damage.
Multiple Inquiries (Hard Pulls): It’s important to keep in mind that multiple hard pulls in a short period can slightly reduce your credit score. However, credit scoring models like FICO typically treat multiple inquiries for the same type of loan (e.g., mortgages) as one if they occur within a 14-45 day window. This means that you can shop around for the best mortgage rates without significantly hurting your credit score.
Tips for Homebuyers:
- Check Your Credit Before You Apply: Before applying for a mortgage, check your credit score. This will give you an idea of where you stand and whether any improvements are needed.
- Don’t Apply for Too Many Loans at Once: Each hard pull can slightly impact your credit score, so avoid applying for multiple credit cards or loans during the homebuying process.
- Shop Around for the Best Rates: Use soft pulls or get pre-qualified to compare offers from different lenders. Once you’ve chosen the best option, you can proceed with a hard pull to finalize your loan.
Conclusion
In the homebuying process, hard pulls and soft pulls each serve different purposes. A soft pull is a gentle way to assess your credit when you’re still exploring options, while a hard pull is necessary to finalize a mortgage and get a concrete picture of your financial health. Understanding the difference can help you manage your credit and avoid unnecessary risks as you embark on the exciting journey of buying a home.
At AZ Mortgage, we’re here to guide you through every step of the process, from pre-qualification to closing. If you have any questions about credit pulls or other aspects of the mortgage process, don’t hesitate to reach out—we’re here to help!
