Learn more about credit checks before starting your home search, so you know what to expect during the buying process.
First, let’s review what a “credit check” means. It refers to the act of pulling your credit report to assess your financial history and behavior. A credit check can either be a soft or hard inquiry on your credit report.
When you or someone else checks your credit report but doesn’t submit a new application for credit, it’s considered a soft inquiry or “soft pull.” Examples include employers checking on potential new hires or credit card companies looking for pre-qualified customers. However, when you actively apply for a new line of credit, such as a credit card, home or auto loan, the lender requests your credit report. Your credit score and the financial information on your credit report can determine approval, as well as the terms of your loan. This credit check is considered a hard inquiry or “hard pull.”
Hard inquiries are a necessary part of applying for a mortgage and can’t be avoided. However, the Consumer Financial Protection Bureau (CFPB) has regulated that, “Within a 45-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry. This is because other creditors realize that you are only going to buy one home.” The CFPB also assures consumers that “a single credit inquiry from a lender will have little impact on your credit score.”