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Hard Credit Pull vs Soft Credit Inquiry: What’s the Difference?

If you’re ready to explore the exciting yet sometimes confusing world of buying real estate and homeownership in Chicagoland, understanding how credit inquiries impact your credit score is crucial.  

Lenders rely on these inquiries to assess your financial responsibility, but not all inquiries are created equal. Let’s take an authoritative look into the two main types of credit checks: hard credit pulls and soft inquiries. 

We’ll explore their differences, how they affect your credit score, and strategies to minimize the impact on your financial outlook.

Credit Inquiries: The Building Blocks of Loan Decisions

Imagine credit inquiries as puzzle pieces lenders use to help create a picture of your financial health. These deep dives reveal your borrowing history, repayment habits, and overall creditworthiness.  

When you apply for a mortgage or any other line of credit, lenders request information from the three major credit bureaus (Experian, TransUnion, and Equifax) to build this picture.

The Hard Inquiry: A Temporary Dip for Long-Term Gain

A hard inquiry, also known as a “hard pull,” occurs when a lender accesses your full credit report to evaluate your eligibility for a loan. This happens when you fill out an application for a mortgage, a car loan or lease, apartment rentals, credit cards, or personal loans.

This in-depth analysis helps them assess your ability to repay by considering factors like:

Do Hard Inquiries Hurt Your Credit Score?

Hard inquiries can cause a slight decrease in your credit score, typically less than five points. This happens because they indicate a new application for credit, which can raise a lender’s concern about potential overextension. However, the impact is temporary and usually lessens within a year (although evidence of hard credit checks stays on your report for two years).

Here’s the good news for Chicagoland homebuyers: when you’re rate shopping for a mortgage, multiple hard inquiries within a specific timeframe (14 – 45 days) are considered a single inquiry by credit scoring companies. This “rate shopping window” allows you to compare rates from different lenders without hurting your credit score significantly.

Another impact of a hard pull from another lender? Learn more about unwanted solicitations after a credit inquiry.

The Soft Inquiry: A Gentle Peek Without Consequence

Soft inquiries, also known as “soft pulls,” occur when someone checks your credit for informational purposes, not loan applications. These inquiries do not impact your credit score and are invisible to most lenders. Here’s when you might encounter a soft inquiry:

Strategies for Minimizing Hard Inquiries

While a single hard inquiry isn’t a deal-breaker for your mortgage application, minimizing them can give you a slight edge. Here are some tips:

Embrace soft qualification: Take advantage of a “soft qual” pre-approval from your lender. This soft inquiry provides an estimated loan amount without affecting your credit score.

Avoid lenders who start with a hard pull: Many loan originators will take a hard credit pull first as a way of discouraging you from shopping down the road and “locking you in.” Sometimes a hard pull is necessary, and your lender should explain why. But, often it’s lazy, or worse. 

Avoid rate shopping over time: If comparing mortgages, concentrate your inquiries within the designated timeframe (two to six weeks) to benefit from the single inquiry treatment.

Be strategic with credit card applications: Avoid applying for multiple credit cards in a short period. Focus on cards that align with your spending habits and offer rewards that benefit you.

Monitor your credit reports regularly: Regularly checking your credit reports for errors or suspicious activity can help you identify unauthorized inquiries potentially linked to fraud.

The Bottom Line: Knowledge is Power 

Understanding hard and soft inquiries empowers you to navigate the path to property ownership with confidence. If you can minimize hard inquiries and maintain a healthy credit score, you can unlock better interest rates and save money on your dream home. 

I’m committed to educating my clients throughout the mortgage process and helping you achieve homeownership success. Here’s how an experienced mortgage lender can help first-time buyers:

  • Custom loan options: we offer a wide range of mortgage products to suit your specific needs and financial situation.
  • A streamlined pre-approval process (with a soft qual!): having a clear picture of your borrowing power strengthens your offer.
  • Expert guidance every step of the way: from pre-qualification to closing, our team is dedicated to providing you with clear communication, resources, and insights throughout the mortgage journey.

Together, let’s build a brighter financial future grounded in knowledge, transparency, and empowerment. Contact us today to discuss your mortgage options and get pre-qualified!

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