In summary, a soft credit inquiry won’t have an impact on your credit scores, but a hard credit inquiry may and will remain on your credit reports for approximately two years. Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect.
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Congratulations on reaching the closing stage of your home buying journey! This is an exciting time, but it’s also important to be aware of potential pitfalls that could jeopardize your mortgage approval One such pitfall is a change in your credit score before closing
What is a Soft Credit Pull?
A soft credit pull also known as a soft inquiry or soft credit check, is a type of credit inquiry that does not impact your credit score. It occurs when you or an authorized third party such as a potential employer or a lender pre-approving you for an offer, checks your credit report.
Why Do Lenders Perform Soft Credit Pulls Before Closing?
Lenders typically perform a soft credit pull before closing to verify your financial situation hasn’t changed significantly since your initial pre-approval. They want to ensure you still meet their eligibility requirements and haven’t taken on any new debt that could affect your ability to repay the loan.
How Can a Soft Credit Pull Affect My Mortgage Closing?
While a soft credit pull itself doesn’t directly impact your credit score, it can indirectly affect your mortgage closing if it reveals negative changes in your financial situation. For example, if your credit score has dropped significantly since your pre-approval, the lender may:
- Increase your interest rate: A lower credit score typically translates to a higher interest rate.
- Change other loan terms: The lender may adjust other loan terms, such as the down payment requirement or the loan amount.
- Deny your mortgage: In extreme cases, the lender may deny your mortgage altogether if your credit score falls below their minimum threshold.
How to Avoid Issues with Soft Credit Pulls Before Closing
To avoid any potential problems with soft credit pulls before closing, it’s crucial to maintain good credit habits during the escrow period. Here are some tips:
- Don’t open new lines of credit: Applying for new credit cards or loans can negatively impact your credit score.
- Avoid making large purchases: Using your credit card for significant purchases can increase your credit utilization rate, which can harm your credit score.
- Pay your bills on time: Even a single late payment can significantly damage your credit score.
- Don’t change jobs: Maintaining stable employment is essential for demonstrating your ability to repay the loan.
- Be mindful of deadlines: Follow the lender’s instructions and meet all deadlines for submitting required documents.
Additional Resources:
- Experian: What Happens if Your Credit Changes Before Closing?
- myFICO Forums: Soft Credit Pull Before Closing? HELP! I’m so anxious!
Frequently Asked Questions:
- Q: Will my lender perform a soft credit pull before closing?
- A: Yes, most lenders perform a soft credit pull before closing as a final verification step.
- Q: How can I check if a soft credit pull has been performed on my credit report?
- A: You can access your free credit reports from the three major credit bureaus (Experian, Equifax, and TransUnion) to see if any soft inquiries have been made.
- Q: What should I do if my credit score has dropped before closing?
- A: Contact your lender immediately and explain the situation. They may be able to work with you to find a solution.
It’s essential to comprehend soft credit pulls and how they might affect your mortgage closing if you want your house purchase to go smoothly. You can reduce the possibility of any unpleasant surprises and raise your chances of closing on your ideal house by heeding the advice provided above.
Examples of hard credit inquiries and soft credit inquiries
Generally speaking, the distinction between a hard and soft inquiry consists of whether you granted the lender authorization to examine your credit. If you did, it may be reported as a hard inquiry. If you didn’t, it should be reported as a soft inquiry.
Let’s examine some scenarios in which your credit reports could receive a hard inquiry or a soft inquiry. Note: The following lists are not exhaustive and should be treated as a general guide.
- Mortgage applications
- Auto loan applications
- Credit card applications
- Student loan applications
- Personal loan applications
- Apartment rental applications
- Checking your credit score on Credit Karma
- “Prequalified” credit card offers
- “Prequalified” insurance quotes
- Employment verification (i.e., background check)
Remember that there are other kinds of credit inquiries that might appear as soft or hard inquiries. For example, utility, cable, internet and cellphone providers will often check your credit.
Ask the business, credit card issuer, or financial institution involved to determine whether a specific inquiry is a hard or soft credit inquiry if you’re not sure how it will be categorized.
If you’ve applied for financing or other credit and the lender checked your credit scores as part of the process, you’ve probably experienced what’s called a hard credit inquiry.
Lenders that use hard inquiries, sometimes referred to as “hard pulls,” to check your credit frequently record their official review in your credit reports. They evaluate your credit history, the frequency of your on-time debt and bill payments, and the presence of any negative information on your credit reports using this data.
They also want to know how much credit you’re juggling and how long you’ve been managing your credit. Creditors use all of these variables to determine whether to grant you new credit or more credit.
By keeping a close eye on your credit reports and making sure there are no unpleasant surprises, you can help yourself get ready for a hard credit pull. Checking your own credit reports often involves what’s known as a soft credit inquiry, or “soft pull. ”.
Let’s take a deeper look at the differences between hard credit inquiries and soft credit inquiries.