Ever wondered what the difference between a hard and soft credit inquiry was or why someone would choose one over the other? Today we will discuss both and go over the pros and cons of each. Let’s start by defining each one and what it means for your client’s credit score.
A soft credit inquiry is typically used for promotional purposes or to provide initial information to a potential creditor. No one other than the consumer can see this inquiry on their credit report and thus does not affect your FICO score regardless of the number of times you request your credit to be run.
A hard credit inquiry, on the other hand, is visible to both consumer and lender and will be the official credit report used to make a lending or credit decision. A hard credit inquiry can have a minimal impact on a consumer’s FICO score and multiple hard credit pulls outside of a 14-day window can have a further negative impact on the score.
So why would anyone do anything other than a soft credit pull if a hard pull affects your FICO score? While both can give you information about your credit status, only a hard credit pull can be utilized for the processing and underwriting of a mortgage loan application.
Lenders can use the soft credit inquiry to provide a baseline of information to a borrower, provide a preapproval letter or guide the client on how to improve their overall credit score.
To review, let’s go over out a few pros and cons of both:
Soft Credit Pulls
PRO: A soft credit pull will give the lender a window into a consumer’s credit profile with zero impact to their FICO score. At Key Mortgage we have the ability to even provide an actual preapproval with automated underwriting using this report, which is not the case for all lenders.
CON: A soft credit report cannot be used for the actual underwriting of a loan, so a hard credit report must be completed. If anything has changed in the borrower’s credit profile since the soft credit inquiry, the FICO score may be different than it previously was shown as.
Hard Credit Pulls
PRO: A hard credit report is the actual report used to underwrite a mortgage loan and is good for 120 days from report date to closing. It can cut down on the surprises you may see between a soft and hard credit pull. You can also utilize a simulator to see if you can improve your score by paying off debt or opening up credit.
CON: A hard credit pull will trigger other lenders who have purchased the right to be notified of a hard credit inquiry to start contacting you. A barrage of unsolicited offers for credit may start coming in (see this article on trigger leads from May for more information).
There are no hard-and-fast rules about which approach will be right for your client, but you can have peace of mind when they’re in the hands of a Key Mortgage loan officer. Our loan officers have the ability to utilize both and will take a consultative approach to your client to determine what the best path should be.
Reach out to a Key Mortgage loan officer today!