03
Jan

Comparing Loans

For those of us shopping around for the best rates on a mortgage or other loan, a common question is: will comparing loans affect my credit score?

The short answer is: it depends. The long answer requires a more in-depth explanation.

Understanding hard and soft credit checks

First, it’s important to understand the difference between a soft credit check and a hard credit check.

A soft credit check (sometimes called a soft inquiry or soft pull) is a preliminary way for a creditor to figure out where you stand financially. By listing your name, birthdate, income, and estimated credit score, you may get a general estimate of what to expect from a loan rate. Reviewing your own credit history is also categorized as a soft inquiry, which may be helpful to know when working on fixing your credit score. Importantly, a soft credit check does not impact your credit score.

A hard credit check (a hard inquiry or hard pull) will require your social security number, and possibly proof of income. Hard inquiries do affect your credit score, but are a better, more accurate way for a creditor to discern whether or not you qualify for a loan. Usually in a hard inquiry, a banker has accessed your credit score and credit history.

If you’re not sure which type of inquiry will be performed, it is usually safe to assume that any time your social security number is requested, a hard inquiry will be performed at some point in the immediate future. Before that, any rate estimate you receive is just that: an estimate. When you receive “pre-approved” offers in the mail from various lending institutions, that does not mean anyone has run a hard credit check. In fact, for the most part, it is illegal to run a hard credit inquiry without your express consent.

So, when shopping for the best rate on a loan, here are a few tips:

  • It’s important to have an idea of where you stand. A credit repair company can help you gain access to your own credit report. Each American is allowed one free credit report per year under federal law. Just be aware, however, that this may affect your credit score in a small way.
  • If you aren’t sure which type of credit check will be performed, make sure to read the fine print before you hit “submit” or check the “I agree” box. If you’re still unclear, contact that company’s customer support and ask them directly.
  • When it comes to supplying your social security number, always make sure you’re giving it to a reputable company. Also double check that the URL begins with “https” so you know the site is securely encrypted.
  • Lastly, remember that in a soft pull, the rate you’re presented with may not be the one you end up with after the hard inquiry is finished.

So, in the end, the answer to the original question, “will comparing loans affect my credit score?” is, predictably, “it depends.” The best thing you can do is stay informed, ask plenty of questions as you’re researching loans, and remain in control of your search for quality credit.

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