This guide covers hard pull credit inquiries by creditors, mortgage lenders’ credit inquiries, and their impact on borrowers’ credit scores. Lenders will do hard-pull credit inquiries for mortgage loan applicants who need to get pre-approved.
If you’re rate shopping for a mortgage or auto loan, multiple inquiries within a certain timeframe (often 14–45 days, depending on the credit scoring model) are usually treated as a single inquiry to minimize the impact on your credit score.
Whether consumers apply for credit cards, furniture credit cards, installment loans, mortgage loans, automobile loans, or any other credit, creditors will do hard pull credit inquiries. In the following paragraphs, we will cover hard pull credit inquiries and how they work.
Types of Credit Inquiries
A hard pull (or hard inquiry) on your credit report occurs when a potential lender or creditor checks your credit report as part of the decision-making process for a credit application. These inquiries typically happen when you apply for a new credit card, mortgage, auto loan, or other types of credit. There are two types of credit pulls:
- Soft Pull Credit Inquiries
- Hard Pull Credit Inquiries
Hard pull credit inquiries will drop consumer credit scores. This article will cover and discuss hard pull credit inquiries versus soft pull during the mortgage process.
Credit Inquiries Drop Credit Scores
Every time consumers apply for credit cards, the credit card companies will do hard credit inquiries. Each hard pull inquiries will drop scores by two or more points. However, the more devastating effect is not the drop in credit scores; the hard pull credit inquiries will show up on credit records and remain there. For consumers who decide to apply to a bunch of credit card companies simultaneously, all the hard credit inquiries will appear on their credit reports.
Negative Effects of Credit Inquiries
Consumers with many hard credit inquiries simultaneously will raise red flags for creditors. They will wonder why credit applicants are applying for a bunch of credit at the same time. This will alert creditors, who suspect the consumer desperately seeks credit. Although credit scores might not have been affected too much, too many hard credit inquiries will cause suspicion, and the chances are that the credit grantor will deny the loan.
Strategy In Applying For New Credit
Although hard inquiries are not good, this does not mean that a consumer should not apply for new credit. Consumers can apply for a new credit card, department store, or gas credit card. But do not apply for them all at the same time. Spread them out over many months. Consumers should not apply for more than three new credit tradelines in six months. Avoid applying for more than three new credit tradelines in 30 days to limit hard-pull credit inquiries.
Key Points About Hard Pull Credit Inquiries
Hard pull credit inquiries will impact consumer credit scores. Each hard inquiry can have a small, negative impact on your credit score. The effect is usually minor and temporary, but it can add up quickly if you have multiple inquiries. Hard inquiries are visible on your credit report and are factored into calculating your credit score. They stay on your credit report for about two years. Lenders perform hard pulls to assess your creditworthiness and determine the risk of lending to you. They want to see how responsible you are with credit and whether you pose a potential risk of default.
Examples of Hard Pulls Credit Inquiries
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- Applying for a credit card
- Applying for a mortgage
- Applying for an auto loan
- Applying for a personal loan
Generally, a hard pull can only be done with your consent. When you apply for credit, you typically give permission for the lender to check your credit report. It’s important to be mindful of how often you apply for credit, especially within a short period, as numerous hard inquiries can signal to creditors that you may be in financial distress or actively seeking a lot of new credit, potentially impacting your creditworthiness.
A soft credit pull is a credit inquiry that will show up on the credit record but will not affect credit scores. Most mortgage companies and banks will do an initial hard pull once borrowers apply. Then, they will do soft credit pull inquiries throughout the mortgage process. Most creditors will understand when they see more than three credit inquiries in a credit report by a mortgage company within a 30-day time frame. Lenders will assume mortgage applicants are shopping for a mortgage loan. Make sure, if possible, that when applying for new credit, the creditor can do a soft credit pull rather than a hard pull.
Inquiries During Mortgage Process
The mortgage underwriter will question all recent credit inquiries during the mortgage process. Every credit inquiry on the borrower’s credit report needs to be explained. The loan officer can go over with the borrower and write the letter of explanation. The explanation only needs to be a sentence or two long.
Case Scenario
For example, if a borrower has half a dozen credit inquiries from mortgage companies, All the borrower needs to state is “Shopping For Mortgage” on the lox. Underwriters will also want to know the outcome of the credit inquiry. Underwriters will want to know whether the credit was approved or not. Always tell the truth during the mortgage process.
