As you gear up to apply for that dream loan – whether it’s a mortgage, personal loan, or credit card – you might come across the term “soft pull” during the application process. But fear not, because we’re here to demystify this gentle touch in loan applications and explain why it’s necessary.
What is a Soft Pull?
A soft pull, also known as a soft inquiry or soft credit check, is a type of credit inquiry that does not affect your credit score. Unlike a hard pull, which occurs when a lender reviews your credit report as part of a loan application and can impact your credit score, a soft pull is more like a gentle tap on the shoulder – it’s there, but it doesn’t leave a mark.
Key Characteristics of a Soft Pull:
- No Impact on Credit Score: Soft pulls don’t affect your credit score, so you can breathe easy.
- Not Visible to Lenders: Future lenders won’t see soft inquiries on your credit report.
- Common Uses: Employers, credit card issuers, and yourself (when checking your own credit) typically use soft pulls.
Why is a Soft Pull Necessary?
Now, you might be wondering, why bother with a soft pull if it doesn’t affect your credit score? Well, there are several reasons why lenders use soft pulls in the loan application process:
Prequalification
Soft pulls are often used during the prequalification stage of the loan application process. By conducting a soft pull, lenders can get a preliminary look at your credit report to determine if you meet their basic eligibility criteria without impacting your credit score. This allows you to gauge your borrowing potential without any negative repercussions.
Offering Preapproved Offers
Soft pulls also allow lenders to offer preapproved loan offers to potential borrowers. These preapproved offers are based on a soft inquiry of your credit report and provide you with an estimate of the loan amount and terms you may qualify for, giving you a better idea of your borrowing options. This can be incredibly useful for planning and decision-making.
Monitoring Credit
In some cases, lenders may use soft pulls to monitor the credit profiles of existing customers. By regularly checking in with soft pulls, lenders can keep tabs on changes to your credit report and identify opportunities to offer you additional products or services that may be of interest. This proactive approach ensures that borrowers are consistently presented with the best options available.
Common Misconceptions About Soft Pulls
Despite their benign nature, soft pulls are often misunderstood. Here are a few common misconceptions:
1. Soft Pulls are the Same as Hard Pulls: Unlike hard pulls, which can lower your credit score slightly and are visible to other lenders, soft pulls are harmless and invisible to others.
2. Soft Pulls Mean You’re Committed to a Loan: A soft pull doesn’t mean you’re committed to a loan. It’s merely a preliminary step to understand your creditworthiness.
How to Identify a Soft Pull
When you receive communication from lenders or financial institutions, you can usually identify a soft pull if:
- No Formal Loan Application is Submitted: If you haven’t submitted an official loan application, any inquiry is likely a soft pull.
- You’re Checking Your Own Credit: Checking your own credit report, through services like Credit Karma or annualcreditreport.com, involves soft inquiries.
When to Expect a Soft Pull
Here are some scenarios where you might encounter a soft pull:
- Pre-qualifying for Loans or Credit Cards: Before you formally apply, some institutions might do a soft pull to estimate your eligibility.
- Background Checks by Employers: Employers sometimes perform soft pulls during the hiring process.
- Marketing Purposes by Lenders: Financial institutions might use soft pulls to determine if you fit specific marketing criteria for loan offers.
Conclusion
So, what’s the deal with soft pulls in loan applications? Essentially, they’re a gentle way for lenders to gather information about your credit profile without impacting your credit score. Whether it’s for prequalification, offering preapproved offers, or monitoring credit, soft pulls play a valuable role in the loan application process, providing lenders and borrowers alike with valuable insights and opportunities.
So the next time you encounter a soft pull during a loan application, rest assured that it’s all part of the process – a gentle touch on the path to securing your dream loan.
Ready to explore your loan options without impacting your credit score?
Understanding the difference between soft and hard pulls can give you the confidence to navigate the loan application process effectively. For more insights into credit scores, loan applications, and financial planning, stay tuned to our blog. And remember, knowledge is power.
