Understanding the Benefits of a Soft Credit Pull

A credit check is a standard procedure when applying for personal loans. However, multiple hard credit inquiries can negatively affect a person’s credit score. A hard inquiry (or hard pull) is an information request for an applicant’s full credit report, which is typically performed for credit approvals and background checks.

Fortunately, lenders are able to conduct soft inquiries (or soft pulls) into a potential borrower’s credit report. A soft inquiry differs from a hard inquiry in that it does not grant approval for a loan, but allows the lender to determine if you meet certain selection criteria, while having zero effect on an applicant’s credit score.

A credit report is a record of a borrower’s financial behavior and one of the standards by which lenders consider loan applications. Credit reports contain: personal information, credit history, credit inquiries, and public records. A consumer’s credit history and inquiries, along with payment history, debt level and credit mix, are combined to formulate an individual credit score, which can range from 300 (very poor) to 850 (exceptional).

When a person applies for a specific loan, their credit report is hard pulled by the lender to verify and assess the potential borrower’s financial health. Hard pulls will show up on an individual’s credit report, and multiple applications in quick succession can be seen as a red flag to potential lenders, as it could suggest the borrower is financially unstable and presents a higher risk of defaulting.

Soft credit pulls, on the other hand, allow lenders to check the eligibility of a potential borrower prior to a formal application. These soft inquiries only gather the bare essentials of a person’s financial record and don’t affect a person’s credit score. While they will show up on credit reports, soft checks are only visible to the individual owner. For this reason, they present a useful midpoint when browsing for loans, and can help consumers find pre-qualified offers with a high chance of final approval from the lender. 

Pre-qualified loan offers use soft inquiries to the advantage of both parties. Lenders can gauge a borrower’s potential level of risk, allowing them to tailor loan terms to minimize the risk of default. For potential borrowers, they’re able to readily compare personalized loan offers to match their individual needs. Furthermore, by reducing the risk of rejection, both parties stand to save time and money.

The process of being pre-qualified through a soft credit pull can result in more relevant offers for the applicant. It also reduces the risk of denied applications, which can lower a person’s credit score. Fiona can match consumers with personalized loan offers, allowing applicants to save time and effort when comparing them.