Credit Inquiries: Hard vs. Soft Pulls

Our hard money loans have a few underwriting requirements. For example, we don’t verify income and are not credit score-driven. That does not mean that our borrower’s previous payment history is irrelevant to us. We do take a look at their credit history – even if we are aware that it might not be stellar. Most of our borrowers are perfectly fine with it, but a few are hesitant. One of their concerns is putting an inquiry on their credit. “Do you do a hard pull or a soft pull?” they ask. Let me clarify some confusion about hard and soft credit pulls and give real-life examples of each.

Why Hard Money Lenders Want to Take a Look at Your Credit History

Hard money lenders are in the business of lending money. As such, it’s natural for them to want to know how you paid your debts in the past. The past performance might not always be an indicator of the future results. However, someone with a stellar credit history will likely be more disciplined in paying their obligations than someone who has been consistently late.

Since we are an asset-based lender, your credit history is less important than other factors, such as your transaction profitability and your experience renovating homes. However, common sense suggests that someone who is behind in their current mortgage payments, is in active bankruptcy, or has IRS liens might not be in the best position to invest in real estate.

What is a Hard Inquiry?

A hard inquiry (also called a “hard pull” or “hard credit check”) happens when a lender, like a bank or credit card company, checks your credit to make a lending decision. This typically occurs when you apply for a mortgage, loan, or credit card and must give your authorization.

The good news is that individual hard inquiries have a minimum impact. At most, they may lower your credit score by a few points. A single hard pull inquiry is unlikely to affect your chances of getting approved for credit, and its effects on your score diminish over time. Hard inquiries stay on your credit report for about two years. However, applying for several credit cards or loans in a short time may signal to lenders that you are a higher-risk borrower desperately seeking leverage.  

How Many Hard Inquiries Are Too Many?

The impact of hard inquiries on your credit score depends on your overall credit health. A couple of inquiries may cause a slight drop in your score, but multiple inquiries within a short period can have a more significant effect. This is especially true for credit cards, though inquiries for certain loans (like car, mortgage, or student loans) are often treated differently and may count as a single inquiry.

What is a Soft Inquiry?

A soft credit inquiry (also known as a “soft pull”) occurs when someone checks your credit for reasons unrelated to new credit applications, like when an employer conducts a background check. Unlike hard inquiries, soft inquiries don’t affect your credit score and often don’t appear on your credit report. You also won’t need to authorize them; they’re only visible to you.

Checking your own credit score is a soft inquiry, so it won’t affect your score.

Examples of Hard vs. Soft Inquiries

Hard inquiries include:

• Mortgage, auto loan, or student loan applications
• Credit card and personal loan applications
• Hard money or private money loan applications
• Rental applications

Soft inquiries include:

• Checking your own credit score at sites like CreditKarma.com
• Prequalified credit card or insurance offers
• Employment background checks

We Work with You to Minimize Inquiries on Your Credit

At New Funding Resources, we understand that you might not be thrilled to put an inquiry on your credit history or even share your social security number. If you are looking for a general hard money preapproval and don’t have a specific property in mind, we can accept a copy of your self-pulled credit history. This way, we have a good idea of your credit standing, and you avoid getting that hard pull on your credit.

Once you have a ratified contract, though, our underwriters are required to check your credit. They will provide you with a document that you sign to authorize them to check it. Like every other lender’s credit pull, that pull will be hard. The good news is that its impact on your credit standing should be negligent.

Disputing Hard Inquiries

It’s a good idea to review your credit reports regularly. If you notice an unauthorized hard inquiry, you can dispute it with the credit bureau. This could be a sign of identity theft. Authorized hard inquiries, however, will naturally fall off your report after two years.