How does a "soft pull" af­fect your credit re­port?

The Day - - HOME SOURCE - By Day Mar­ket­ing

Any­one look­ing to buy a home, get a car loan, or other­wise ap­ply for fi­nanc­ing is al­ways en­cour­aged to check their credit re­port. This in­di­ca­tor of how much debt you carry, and how well you've been do­ing in keep­ing up with pay­ments, is also summed up in a credit score.

Nat­u­rally, lenders will be more ret­i­cent about pro­vid­ing a mort­gage to some­one who has not done a good job of man­ag­ing their debts. Even if you have a de­cent credit score, im­prov­ing it can help you se­cure the most ad­van­ta­geous terms for a loan.

In­quiries into your credit can re­sult in a tem­po­rary de­crease in your credit score. How­ever, soft pulls—also known as soft checks or soft in­quiries—al­low your credit to be re­viewed with­out a neg­a­tive ef­fect.

While "hard pulls" on your credit re­port can re­duce your score, soft pulls will sim­ply pro­vide some in­for­ma­tion about your credit with­out neg­a­tively im­pact­ing it. One ex­am­ple of a soft pull is re­view­ing your own credit re­port to see if there are any er­rors that need cor­rect­ing or other steps you should take to im­prove your fi­nances.

You might be sur­prised to check your credit and see that sev­eral com­pa­nies have also con­ducted soft pulls. The credit bureau Ex­pe­rian says rel­e­vant agen­cies such as lenders, in­sur­ance com­pa­nies, and credit card com­pa­nies can do soft pulls on your credit with­out your per­mis­sion. This al­lows them to preap­prove you for of­fers.

Adam McCann, writ­ing for the fi­nan­cial site Wal­letHub, says em­ploy­ers may also do a soft pull on your credit to get a gen­eral sense of your fi­nan­cial man­age­ment. This screen­ing is of­ten re­quired for jobs where a se­cu­rity clear­ance is re­quired or you will be work­ing with money.

Cred­i­tors may do a soft pull as part of the rou­tine main­te­nance of an ac­count, such as set­ting spend­ing lim­its on a credit card. Apart­ment build­ing man­agers and util­ity com­pa­nies may also be able to check your credit to see if you can re­li­ably han­dle monthly ex­penses.

While these checks will be vis­i­ble to you, they won't nec­es­sar­ily be vis­i­ble to other com­pa­nies that re­view your credit. How­ever, Ex­pe­rian says in­sur­ance com­pa­nies may be able to see if an­other in­surer has con­ducted a soft pull.

Even if sev­eral places do soft pulls on your credit, the ac­tion won't have a neg­a­tive ef­fect on your credit score. The credit bureau Tran­sUnion says soft pulls will stay on your re­port for 24 months.

Hard pulls are con­ducted when you ap­ply for a loan, since the lend­ing agency will give your credit re­port more scru­tiny. Trent Hamm, writ­ing for the bud­get­ing site The Sim­ple Dol­lar, says such in­quiries will have a short-term neg­a­tive ef­fect on your credit score. Lind­say Kon­sko, writ­ing for the fi­nan­cial site NerdWal­let, says a hard pull can knock up to five points off your credit score. Un­like soft pulls, hard pulls are vis­i­ble to any­one who checks your credit, and a lender or other agency needs your per­mis­sion to con­duct one.

Hard pulls gen­er­ally oc­cur when you ap­ply for a mort­gage, auto loan, stu­dent loan, per­sonal or busi­ness loan, or credit card. Some banks have also started do­ing hard pulls be­fore ap­prov­ing a cus­tomer for a check­ing or sav­ings ac­count.

The tem­po­rary neg­a­tive ef­fect of a hard pull is due to the con­cern that if a per­son is ap­ply­ing for more credit, they may be hav­ing trou­ble with their cur­rent fi­nan­cial sit­u­a­tion. Ex­pe­rian says there is also the risk that you will overex­tend your fi­nances if you take on too much debt or open up too many lines of credit.

Like soft pulls, hard pulls will re­main on your re­port for two years. How­ever, Tran­sUnion says a hard pull will only af­fect for score for about 12 months af­ter it is con­ducted.

Since a higher num­ber of hard pulls is as­so­ci­ated with greater fi­nan­cial risk, it is a good idea to limit the num­ber of hard pulls you al­low. How­ever, it is still pos­si­ble to al­low mul­ti­ple lenders to con­duct hard pulls while shop­ping for an auto or home loan. If sev­eral in­quiries take place in a short pe­riod of time, usu­ally 45 days, credit bu­reaus will con­sider that they are related to com­par­i­son shop­ping for a sin­gle loan.

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