What is a soft credit check?
Soft credit checks happen when you check your own credit report, or when a lender checks to see whether you’re eligible for certain products and interest rates.
The lender may want a top-level view of your financial history so they can pre-approve any offers, or show you what you could potentially be eligible for.
A soft credit check doesn’t leave a visible footprint on your credit file, but it is recorded. This means no other lenders can see it. A soft credit check won’t impact your credit score, but, you’ll be able to see if anyone has checked your credit history.
If you view your own credit report, this will also come up as a soft credit check. You may find that, in certain industries, employers will want to perform a soft credit check if you’ve recently applied for a job with them. This will depend on the employer.
Soft credit inquiry: Soft inquiries don’t impact your credit score. An example of a soft inquiry is an employer conducting a financial background check on a potential new employee candidate.
These inquiries don’t submit a new credit application, as they are just looking at your overall credit score. You can perform a soft inquiry and look up your credit score.
Hard credit inquiry: When an individual pursues an application for a new loan or line of credit, the lender performs a more in-depth assessment. This assessment looks at the buyer’s credit score and credit report to determine if they’re suitable for the credit or loan request.
How Does Mortgage Pre-Approval Work?
A pre-approval works by using verified information to approve you, as a buyer, for a mortgage loan. You should always contact a lender to see what loan amount you can qualify for before house hunting.
A mortgage expert will review your financial documents and use the information to determine what you are eligible for, go over your loan options, and provide a detailed estimate, including interest rate, closing costs, and your monthly housing payment.
All the information they review in the pre-approval process determines the mortgage amount and interest rate you qualify for currently.
The pre-approval reviews details like:
- Credit score
- Credit history
- Monthly debt payments
- Bank statements
- Pay stubs
- Tax returns
- Housing payment history
Your pre-approval is typically good for 90 days. The mortgage and interest rate they provide give you a reliable amount to work with for your house hunting. It enables you to forecast your mortgage payments and accurately calculate the maximum property value you want to afford.
Is Pre-Approval a Hard Inquiry?
Yes, a pre-approval is a hard inquiry. Applying for a pre-approval through a mortgage lender is a standard step in the mortgage approval process because it involves lenders looking at more detailed information.
Because lenders give loans for large amounts of money, hard inquiry credit checks are routine.
A Pre-Approval is Worth It
There are clear advantages when getting a pre-approval as a home buyer. After the pre-approval process, you’ll receive a conditional commitment for a specified loan amount and mortgage rate.
This pre-approval letter shows home sellers that you are a qualified buyer that can afford to purchase their home. Sellers know this and will rarely take an offer seriously if you don’t also provide a pre-approval letter. So, if you are serious about making an offer on a home, a pre-approval is a must.
Being able to set an accurate budget is another advantage of getting pre-approved. When you know the mortgage amount you are qualified to obtain from a lender, you can make more accurate decisions on which homes you want to afford and see in person. Knowing your mortgage amount, down payment, and monthly payments up-front is an integral part of the house-hunting process.