This morning I got this article from Okshana Sherman and I thought I'd share.
She Writes: I’d like to address one of the questions that many of my clients have when we discuss a mortgage application process:
When you pull my credit for a mortgage, is it a hard pull or a soft pull? A big part of our role here at Suncoast Credit Union is to educate our members or potential members, and I truly enjoy helping people understand all aspects of a home buying process. I hope you’ll find this article helpful! MICHELLE BLACK MARCH 21, 2019 IN
PERSONAL FINANCE There are few credit topics that cause as much confusion among consumers than the subject of credit checks (
aka inquiries). You’ve probably heard some of the myths about how inquiries can harm your credit score. As a result, you may find yourself wondering how inquiries really do impact your credit profile. Here’s the scoop: Whether or not a credit check has the potential to damage your credit scores comes down to one key piece of information – is the credit inquiry hard or soft?
What is a credit inquiry? An inquiry is a record on your credit report that shows who accessed your credit information and when they did so. The
three credit reporting agencies – Equifax, TransUnion, and Experian – are
required by law to disclose (upon request) a record any time access to your credit report has been granted.
What is a hard inquiry? Certain types of credit checks have the potential to damage your credit score (though that doesn’t mean credit score damage is guaranteed). These credit checks are commonly referred to as hard inquiries. Typically, hard inquiries occur when you apply for new credit or services. A few examples of hard inquiries include:
- A lender checks your credit as part of a loan or credit card application
- A collection agency trying to locate you checks your credit for skip tracing purposes
- Your credit card issuer checks your credit because you request a credit limit increase
The reason lenders and scoring models care about the number of hard inquiries on your report is simple: Too many hard inquiries can indicate higher credit risk. However, before you get too worried about the damage a hard inquiry might cause your credit score, remember that inquiries are only worth a small percentage of your overall credit score. According to both
FICO and
VantageScore, companies that calculate credit scores used by lenders, inquiries generally won’t have a huge influence on your credit scores.
Payment history is worth 35 percent of your FICO Score. Your credit utilization, or the ratio of your outstanding credit card balances to your credit limit, is largely responsible for another 30 percent. Inquiries, by comparison, only account for a portion of the new credit category of your credit reports. The whole category is worth 10 percent of your credit scores, and inquiries only make up part of that amount.
What is a soft inquiry? A soft inquiry is a credit check that does not damage your credit score in any way. In fact, if a lender checks your credit, soft inquiries will not show up on the lender’s copy of your credit report at all. Soft inquiries are only viewable on consumer disclosure reports – aka credit checks you initiate yourself. A few examples of soft inquiries include:
- You check your own credit report
- A lender checks your credit as part of a pre-approval screening
- Your existing creditor checks your report for account maintenance reasons
- An employer pulls your credit for employee-screening purposes
- An insurance company checks your credit to determine eligibility or pricing for a new policy
The worst credit myth of all is the idea that checking your own credit might harm your scores. It’s completely false. You can check your own credit report any time and it will never affect your scores. Not only can you check your credit reports without fear of credit damage, you should check them. Checking all three of your credit reports often is essential to make sure they are accurate and free of any suspicious activity. (Note: if you discover unauthorized inquiries on your credit report, it could be a sign of
identity theft.)
Keep credit checks in perspective It’s true that you should care about all of the factors that influence your credit scores. However, it’s important to understand that just because something can affect your score doesn’t mean it will affect it greatly. Additionally, inquiries have a short shelf life when compared with other types of information on your credit reports. Inquiries only remain on your reports for 24 months. Plus, once a hard inquiry is 12 months old, it won’t be factored into your scores. Instead of obsessing over inquiries, pay attention to the factors that matter far more, like payment history and credit utilization. When it comes to inquiries, the best advice you can follow is this: Only apply for new credit when you need it. You don’t have to be afraid to apply for new credit when you need financing or can get a better deal. However, you’ll probably want to avoid applying for new credit in order to score a discount on every purchase you make.
