One of the critical parts of a mortgage application process is having your mortgage lender complete a credit check. While borrowers are often apprehensive about having their credit scores pulled, this is an unavoidable part of the mortgage pre-approval process. Simply put, a lender can not complete a valid pre-approval without pulling a borrower’s credit. There are two different types of credit reports that a lender can choose to pull for an initial pre-approval.
A lender can pull a “hard credit report” or a “soft credit report”. Determining which report is best depends on the borrower’s unique scenario and specific circumstances. Each option also has its own inherent benefits along with its own inherent drawbacks. Some lenders choose to only work with hard credit reports to avoid some of the headaches that soft credit reports can provide.
The main factors in determining which type of credit report to pull include the complexity of the loan file, the anticipated scores or debt load, and the anticipated time until the actual purchase takes place. It is crucial that the lender understands all of this information before running any sort of credit check. Oftentimes, it makes sense for a credit check to be the last part of the pre-approval process only pulled after the other parts of the application have been completed/reviewed.
Some of the inherent benefits of soft credit reports are that they are cheaper, will not trigger spam/solicitation phone calls, and have no negative impact on FICO scores. The downsides with soft credit reports are that occasionally some data is reported inaccurately, the data can have a larger lag time, and certain reports/findings are unable to be achieved. It is also worth noting that a hard report will eventually be required once the loan is scheduled to be underwritten.
As a potential borrower, it is important to remember that credit plays a major role in mortgage applications. For even more information about credit reports, you can check out our other blogs which go into other details as well.