The first step in the mortgage process is applying for pre-approval.
During the pre-approval process, mortgage lenders often will perform a hard credit inquiry to review your credit as part of their decision.
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The problem is, a hard credit check can hurt your credit score — especially if you’re applying for pre-approval with multiple lenders.
But here’s the good news: Compass Mortgage does not perform a hard credit check until final approval. That means borrowers can get through the entire underwriting process with only a soft credit pull.
Let’s take a look at the difference between hard and soft credit checks, how this affects your credit and how you can get more than just pre-approved with Compass Mortgage.
What is a credit check?
Credit inquiries occur when a lender, employer or other entity requests an individual’s credit information, including their credit score, credit report and history.
Credit checks are used to determine an individual’s creditworthiness or financial responsibility, particularly when it comes to lending money to an individual or hiring them.
To run a credit check, the requester will ask for an individual’s information from one of the three major credit bureaus. If the requestor has the legal right to ask for the information, the credit bureau can release it to them.
You can also view your own credit report by requesting a copy once a year, from each of the major credit bureaus—for free—without it counting as a hard inquiry on your account.
There are two main types of inquiries: soft inquiries and hard inquiries.
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Soft credit inquiries vs. hard credit inquiries
The difference between soft and hard inquiries depends on how they impact an individual’s credit score.
A soft inquiry, or soft pull, does not impact your credit score.
Soft pulls are most often performed by employers as part of a background check, by an individual who wants to see their own credit report or by a credit card company to determine if someone qualifies for a promotion.
Soft inquiries can only be seen by the individual and are not shared with other creditors or lenders.
Hard inquiries—also known as hard pulls—can impact your credit score.
Hard checks are used when an individual applies for new credit, such as a mortgage or credit card.
When you apply for a loan or credit card, you give the lender or creditor permission to run a hard credit check to determine your creditworthiness.
Hard inquiries are recorded on your credit report and can impact your score. They can stay on your report for up to two years but will usually only affect your score for 12 months.
Prior to applying for a mortgage, borrowers should get in the habit of checking their own credit report from time to time to ensure it is accurate.
What is mortgage pre-approval?
The purpose of mortgage pre-approval is to determine your loan options and how much money a lender is willing and able to loan to you.
Pre-approvals help borrowers understand how much home they can afford based on their qualifying factors, such as their credit score, income, assets and debts.
Pre-approval also helps you and the lender identify potential issues that need to be addressed before securing a loan, including any issues with your credit score or history.
Armed with this knowledge, lenders can offer guidance to borrowers to help them improve their situation and gain access to more favorable loan options.
Once a borrower has been pre-approved, they can use their pre-approval to gain a competitive edge over buyers who may not have gone through the pre-approval process.
How can mortgage pre-approval hurt your credit?
When a potential home buyer applies for mortgage pre-approval, most lenders will perform a hard credit check, which could affect your score.
A single hard inquiry can impact your score by up to five points, depending on your overall creditworthiness and history. Individuals with multiple hard credit inquiries in a short time frame can appear riskier to lenders.
Consider the borrower who is working hard to improve their financial situation while also applying for pre-approval with multiple lenders to try and find the best deal.
Experts often advise borrowers to “shop around for the best rate.” But if shopping around means you’re putting your credit score at risk with multiple hard checks, is it doing more harm than good?
This puts borrowers in a tricky situation.
Compass Mortgages pre-approval vs. standard pre-approval
The loan experts at Compass Mortgage understand how hard credit checks negatively impact a borrower’s credit score.
We are one of the only lenders to use a soft credit check for pre-approval.
With Compass Mortgage, borrowers can get all the way through underwriting without needing a hard inquiry on their credit report.
We offer a unique Get Committed® program to our borrowers, which goes beyond standard pre-approval to provide a fully underwritten loan commitment.
A loan commitment locks in your interest rate before you even find the home you want to purchase. It’s even more powerful than a cash offer because it proves to the seller that you’re fully approved financially and your deal isn’t going to fall through.
We’ll provide you with a loan commitment letter that your real estate agent can include with any offers you make. This letter will show sellers you have financing secured and can close on your financing to purchase the home within a quick time frame.
Get Committed® with Compass Mortgage
To Get Committed®, get started by providing us with basic information about your potential home purchase.
From there, we can perform a soft credit check and work with you to discuss your finances and the potential value of the homes you’re interested in purchasing.
We can then discuss the loan options available to you and the documentation we require for the underwriting process.
We promise to walk with you every step of the way throughout the loan process to help you and your real estate agent put together the most competitive offer on the table.
We can’t wait to help you get into your new home!
Photo by Alexander Suhorucov