Hard Credit Pulls, Soft Credit Pulls – Do We Need to Care?

In 1969, the renowned rock band Led Zeppelin famously sang:

“Hard pulls, soft pulls, you know I’ve had my share
When my woman left home for an 800 score
But I still don’t seem to care”

Given that it was about 25 years before credit scores were widely used, I’ve always thought it was remarkably prescient – because most borrowers care far too much about credit pulls and the impact on their scores.

A hard credit pull or a hard inquiry occurs when a lender/mortgage company checks someone’s credit for creditworthiness for a loan application. These checks require formal permission, and they impact credit scores.

A soft credit pull or a soft inquiry is less invasive. Soft pulls cost a lot less, don’t impact credit scores, and don’t require permission. They are used for pre-qualifications (not formal pre-approvals), background checks, and when people check their own credit.

Borrowers often request soft pulls because they are overly concerned about the impact of a hard pull on their credit.

Lenders also sometimes prefer soft pulls because, they don’t spawn “trigger leads” (explained below), and they can be used to issue loan disclosures and to check to see if a property is eligible for an appraisal waiver (aka Property Inspection Waiver or PIW).

“Trigger Leads” are generated when a borrower’s credit is checked and the credit bureaus immediately sell that inquiry data to other lenders – who then in turn start to pummel those borrowers with competing offers of credit. Lenders hate the competition, and borrowers HATE the enormous number of calls they get (usually dozens, and sometimes hundreds). This is why many lenders like JVM encourage borrowers to “opt-out” of trigger leads.

Soft Credit Pulls Are Overrated

Soft credit pulls are overrated though for a variety of reasons.

1. There is often no monetary savings. I wrote about soft pulls last year and mentioned that the credit bureaus figured out that lenders were using soft pulls to avoid paying for hard pulls, so the credit bureaus pushed up prices and changed fee structures, eliminating the savings. In addition, hard pulls, and the fees that go along with them, are still usually required once a borrower is in contract.
2. They can provide insufficient or inaccurate data – making pre-qualifications based on soft pulls unreliable.
3. Soft pull credit scores are sometimes inaccurate. Lenders ultimately need hard pulls for final loan approvals, and those hard pulls sometimes yield different credit scores, rendering the loan terms based on the soft pull invalid.
4. Lenders ultimately need hard pulls for automated underwriting on government loans and final approvals for all loan types. Hard pulls are more accurate and ultimately required once in underwriting.
5. HARD INQUIRIES ARE NOT THAT BIG OF A DEAL. I repeat these reminders often:

• Multiple inquiries for mortgage financing over a 30-to-45-day period (depending on the scoring model) only count as one inquiry.
• Inquiries only count for about 10% of one’s credit score.
• Inquiries only impact a credit score for one year, and that impact diminishes over time, even in the first year.
• The impact of an inquiry for someone with a high credit score is minimal in any case – maybe a point or two at most.
• And per Experian, “one or two hard inquiries accrued during the normal course of applying for loans or credit cards can have an almost negligible effect on your credit.”