Does Soft Inquiry Affect Credit Score?

Does Pre-Qualification Impact Credit Rating?

If you are planning to purchase any asset such as a house or a car, the first thing you will do is get pre-approved for a loan. Pre-approval gives an idea of how much you could potentially borrow. It also helps the sellers and dealerships understand that you are a genuine buyer who can buy.

However, does pre-qualification affect credit? Will those pre-qualification inquiries appear on the credit reports and reduce your credit scores? Or is it safe to compare your loans?

Here is what you should know regarding pre-qualification and credit impact, and why you do not have to be too concerned about this first step.

What Is Pre-Qualification?

Although pre-qualification and pre-approval are some of the terms that are used in a similar context in the context of a loan such as a mortgage or an auto loan, the two are different.

Prescreening is where a lender makes a preliminary assessment to approximate the amount that you can borrow. They will request some financial details but do not necessarily require supporting documents.

It is not a hard inquiry, and therefore they can pull your credit report but this will not pull down your scores. Screening is also helpful in establishing realistic expectations of what you can afford in terms of a house or a car.

Pre-approval is the succeeding process wherein the lender closely scrutinizes your financial records. They will confirm documents such as checking accounts, wage statements, and tax returns. This hard inquiry shows on the credit reports and may slightly pull down scores for some time.

Does Pre-Qualification Take Credit?

It is advisable to check your loan pre-qualification as it does not affect your credit scores. Here are a few reasons why you don't need to fret over pre-qualification inquiries:

No Hard Inquiries A soft pull is used by lenders to review your credit during the pre-qualification stage. As for the soft inquiries, they do not influence the credit score in any way. This is because while soft checks are not visible to other people, hard checks are visible to other lenders who view your reports.

Many other lenders do not perform even a soft credit check for pre-qualification. They only verify your identity, income, desired loan amount, and other details that you input to give you a profile of what you can get. However, they can verify your credit score, which is a plus for them and a negative for you.

Not readily perceivable by other Creditors If the lender performs a soft credit check to assess your rates, the data is not disclosed to other lenders. Other lenders will not be aware that you applied for pre-qualification since soft inquiries do not affect credit reports.

That is one reason why it will not hurt your credit to get pre-qualified with several lenders. As long as the uses do not become utilization of hard credit checks, one is safe.

Short-Term Inquiries If several hard inquiries do appear on your report, the impact on your scores will only be minimal. In terms of your credit report, loan rate shopping within a short period is considered as one hard credit check.

So, as long as the hard pulls occurred within 14 to 45 days, it is one inquiry to the credit scoring models. This two-week period acts as a buffer so that your scores do not decline every time you apply because all the inquiries are for shopping purposes.

Any credit impact levels itself off after a few months and a good credit history is developed. This is because the gains made in searching for the best rate for major loans more than make up for this initial minor dip.

When to Check Pre-Qualification If pre-qualification does not impact the credit, when is the right time to do it? Here are a few good times to get pre-qualified: Here are a few good times to get pre-qualified:

If this was the first time the buyer was going to make a major purchase, then the decision-making process undertaken was as follows: During the early stage of the home buying or car buying process, it also helps in determining the upper limit of the budget. If the amounts are lower than you planned, pre-qualification gives you an idea of where you are today while you continue to try to make your financial situation better to apply for better financial backing in the future.

In 2-3 months of applying For the first-time buyer, it is advisable to shop for your initial loan offers some three months before purchasing and formalize the pre-qualification into pre-approval. It will clearly show how much of a lender is willing to lend you based on your current verified financial situation.

Before Starting Property Search Some real estate agents may need pre-approval letters as a condition for showing properties. Applying for pre-qualification or pre-approval lets you demonstrate that you’re capable of supporting an offer when you are prepared to make one. Lenders can also offer pre-approval letters if necessary.

When Comparing Loan Options Shopping lenders can assist you in getting the best rate and suitable loan products. To reiterate, credit scoring models are unlikely to punish you for rate shopping as long as you make numerous applications within a short period rather than at several different times.

How to Check Without Risk If you remain concerned about inquiries impacting your credit, there are still ways to check your loan options: If you remain concerned about inquiries impacting your credit, there are still ways to check your loan options:

During the pre-qualification, you need to ask your lenders if they pull your credit report or perform credit checks at all as well. Not all will check your credit status during the initial stages of interaction.

Check if lenders offer the pre-qualification feature through their websites or applications. Some of them do not pull hard or soft credit checks since they provide estimates.

Consider platforms like LendingTree where you complete a questionnaire to obtain rate quotes. There is no necessity to apply formally or to go through the credit check.

The Takeaway Applying for a pre-qualification of a mortgage or car loan is an inquiry that should not affect your credit rating. At worst, a lender might conduct a soft pull that would typically be invisible to the borrower in any case. But as long as you keep the rate shopping in a month or two, multiple applications will not hurt your score.

These are not the type of inquiries that should be avoided if, shortly, you are planning to make a large purchase. Knowing ahead of time how much house, condo, or car one can afford establishes realistic goals before the next phase towards owning is initiated.

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