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What Happens When Your Credit Gets Pulled

May 26, 2021

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What Happens When Your Credit Gets Pulled

We’ve made it pretty clear throughout our site and teachings that maintaining your credit is a vital step towards getting a home loan. For that reason, it’s understandable that having your credit pulled might make you nervous. Throughout this blog, we’ll explain the difference between hard and soft inquiries as well as quick facts and figures about your credit. 

Soft Inquiry

Also referred to as a soft pull, this type of inquiry does not affect your credit score. When you check your credit on places like Credit Karma, you are making a soft inquiry. It’s also what UMortgage does when getting you a Quote! 

Hard Inquiry

Hard inquiries, or pulls, occur when you apply for a new line of credit. Mortgage loans, credit cards, and auto loans all require a hard credit inquiry. 

To best understand the effects a hard inquiry will have on your credit score, let’s first go over the five pieces of data that inform your score.

Payment History - This is your history of paying your credit bills on time and makes up about 35% of your credit score. 

Credit Utilization - This is how much of your available credit you are actively using and makes up around 30% of your credit score. 

Credit Age - This is the age of your longest credit line and makes up roughly 15% of your credit score. 

Credit Mix - This is the different types of credit lines you have, from installment accounts to revolving credit. Credit mix accounts for about 10% of your score. 

New Credit - This is made up of three things: how many lines of credit you have opened, how long it’s been since opening a line of credit, and finally, how many hard inquiries you’ve had. New Credit in total is 10% of your credit score.

Hard credit inquiries can have negative effects on your credit score. First, it can stay on your credit record for two years after the fact and potentially affect up to 12 months following the pull. FICO reports that hard inquiries can cause your score to drop only 5-10 points (possibly higher or lower depending on the strength of your score). However, in most cases you can easily recover those points in no time with responsible credit activity.

However, the credit bureaus understand that you may want to shop around a little to find the best mortgage interest rate. Due to this, any hard inquiries of the same type (mortgage, auto) within 15 to 45 days of each other will only count as one hard inquiry. 

There are strong benefits to a hard credit pull in the case of a pre-approval for purchase transactions. It frontloads the work of loan approval, so when you make an offer on a house, your offer is airtight and taken more seriously. This just goes to show that when it comes to credit pulls, context is everything. 

When thinking about refinancing, the potential risks are similar. Just as with a purchase, a hard inquiry will ding your credit score slightly, but it’s easy to recover from. Refinancing can also lower your credit score because you are closing a major loan, i.e., a credit line, to open a new one. You may remember from our blog about improving your credit score that closing accounts, thus raising your credit utilization percentage, is not stellar for your credit score. However, when refinancing, you’re immediately opening a new credit line for the same, if not more, money, so it’ll negate itself. 

Ultimately though, it’s up to you to decide whether or not a refi is right for you. If you decide it is, chances are, the benefits will far outweigh any minor dings to your credit score. Want to test the refi waters without having your credit pulled? Get a quote today!

Getting your credit pulled doesn’t have to be a scary thing. Be aware of your situation, ask lots of questions, and you’ll be good to go.

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