08/31

Credit – don’t let it be a scary term for you while you’re trying to buy a home! Credit is important; it helps you (or hurts you) when it comes time to fill out applications for loans. So before you jump on the homeownership train, it’s critical that you understand your credit.

When you fill out applications for a home loan, the bank will do a credit pull. What’s a credit pull, you ask?

There are two kinds of credit pulls: a hard and a soft pull.

A hard pull (also known as a hard inquiry) takes place when a lender or a financial institution checks your credit score once you apply for a loan, mortgage, or any other additional line of credit.

They use the credit report as information on deciding whether to accept the borrower’s request. This pull will stay on your credit report for two years (but it will only affect your credit score for one year) and can only happen if you authorize the lender to pull your credit.

One thing to keep in mind: applying for multiple applications at once might not look so good for your credit score. Lenders see multiple hard inquires as red flags when it’s done in a short amount of time. They view it as more opportunity for you to miss or make late payments – if you have too many credit lines.

What about if you’re shipping for the best mortgage rate?

If you’re comparing rates (something you should definitely do when shopping for a mortgage – and hey! We have an article about mortgage shopping), most credit scoring models do take this into consideration. If similar lenders look at your credit report to offer you rates within a 45-day window, it’ll more than likely count as a single inquiry, rather than multiple. This way, your score won’t drop each time you get a quote.

Don’t fret – hard pulls won’t usually make a big change to your credit score. This all depends on how long your credit history is, and how disciplined you are when you make payments (among other things).

Hard pulls happen when you apply for a:

• Mortgage
• Car loan
• New credit card
• Student loan
• Personal loan
• Apartment for rent

A soft pull doesn’t affect your credit and usually happens without you even knowing it. While that sounds concerning, it isn’t something for you to necessarily worry over.

These pulls are cursory reviews of your credit report. Soft pulls happen when:

• Your new employer checks your credit
• You check your own credit
• Lenders send you mail saying you’ve been “pre-approved”

While your credit score is an important part of applying for loans, your payment history is of the upmost importance.

Be sure to check out Alliance’s Blog for more tips and news on all things real estate.