Introduction

Buying a home is an exciting and complicated process. To purchase a home you need a pre-approval from a creditable lender and you can only get a valid pre-approval through through a hard pull on your credit score. A hard credit pull comes with pros and cons that you should consider before having a lender pull your credit. In this article, we will discuss both the advantages and drawbacks of a hard credit pull.

The Pros

1. Accurate Representation of Creditworthiness: A hard pull provides lenders with a comprehensive and up-to-date view of your credit history and credit score, allowing them to make an informed assessment of your creditworthiness. This accuracy ensures that you are presented with mortgage rate and fee options that properly reflect your financial standing. A soft credit pull opens you up to a rate and fees that may differ once you do a hard pull of your credit. Only a hard credit pull will let you know the actual costs of borrowing. Please check out this article on your credit score and how it impacts your mortgage
   
   
2. Precise Interest Rate Determination: A hard credit pull enables lenders to accurately determine the interest rate on your mortgage. A favorable credit score can result in lower interest rates, potentially saving you thousands of dollars over the life of your loan. This precision allows you to secure the best possible terms, making homeownership more affordable in the long run.
   
   
3. Accuracy is Everythimg: For a mortgage loan approval, you only have one accurate credit score for each of the three credit bureaus (Experian, Transunion & Equifax). If you receive a credit score from your bank or credit card company, this is a consumer credit score that is based on getting a credit card. It is not the same as you mortgage credit score. If you apply for a credit card or auto loan, the credit score that those lenders use a different credit score. For all these scores, the inputs are the same, but the algorithm used to calculate the score is different leading to different credit scores. If you try to use anything other than a hard pull from a mortgage lender to find out your rate and fees, you may be greatly disappointed when you get you finally do a hard credit score pull with your mortgage lender. In some cases, something strange may come up on your hard pull from your mortgage lender that does not show up on the other scores. That last thing that you want to do is get into contract on a home and find out that your mortgage terms changed drastically because you were using the wrong credit score.

• Clear Understanding of Financial Health: A hard credit pull offers an opportunity for individuals to gain a clear understanding of their financial health. Reviewing the resulting credit report allows prospective homebuyers to address any discrepancies or negative items, taking steps to improve their credit before committing to a mortgage. If you wait until the last minute to do a hard credit pull, then there is often nothing you can do to improve your credit score. This can cost you money in both your rate and fees. It pays to know where you stand. Please check out this article on Credit Repair Strategies to learn more
  
  
• Not all Credit Pulls are Equal: The decrease in your credit score due to a hard pull to get a mortgage has been drastically overstated by the media. Getting a mortgage is a good form of credit. If you have good credit, a hard credit pull to get pre-approved for mortgage may drop your credit a little but his decrease will not likely impact your interest rate or fees. On the other hand, a hard credit pull to apply for a store credit card will likely have a much larger negative impact on your credit. The reason is because a store credit card is a bad form of credit compared to a mortgage. Getting a credit card to buy merchandise at a store is not a good form of credit. The interest rates are high, and the stores will qualify almost anyone for a credit card to sell their merchandise. A mortgage to buy your home is a great form of credit so there is a much smaller penalty for a hard credit pull.

• Streamlined Approval Process: For those with strong credit profiles, a hard credit pull can expedite the mortgage approval process. Lenders are more likely to swiftly approve applications from individuals with excellent credit, providing a smoother and faster path to homeownership. A faster approval process will save you time and money.
  
  
• Negotiating Power: A stellar credit score from a hard pull grants you negotiating power when working with lenders. With a high credit score, you may be able to negotiate lower interest rates, reduced fees, or other favorable terms, ultimately improving the overall cost of your mortgage. Your final rates and fees are not determined by a soft credit pull so it does not give you any negotiating power with your lender.

The Cons:

1. Temporary Negative Impact on Credit Score: One of the primary drawbacks of a hard credit pull is its temporary negative impact on your credit score. The inquiry itself may cause a slight dip in your score, typically lasting for a few months. If you are applying for a mortgage and good credit, this impact can be minimal. Usually, this small movement in your credit scrore will not impact your interest rate or fees. Your credit score changes daily as your creditors report in payment history and credit balances throughout the month. What you may think is a negative impact on your credit score from a hard pull for a mortgage, may just be the normal movements of your credit score as different data is reported.
   
   
2. Multiple Inquiries Can Cumulatively Affect Score: If you apply for multiple mortgages within a short timeframe, each hard pull can cumulatively affect your credit score. This is particularly relevant for individuals actively shopping for the best mortgage rates, as each inquiry contributes to the overall impact on their credit. This is most likely if you have several had credit pulls over a 3-6 month period. Generally, you can have multiple hard credit pulls during a 45 day period with no negative impact on your score from the multiple pulls. What can be a much larger detriment to your credit score is if you applied for a credit card or auto loan in the six months prior to having a hard credit pull don for your mortgage. If you think that you might be buying a home in the next 6-12 months, avoid applying for or taking out any new credit. This may hurt your credit score much more than a hard pull for your mortgage pre-approval.
   
   
3. Potential for Unfavorable Loan Terms: In some cases, a lower credit score resulting from a hard pull may lead to less favorable loan terms such as a higher interest. As we mentioned below, the decrease in your credit score from a hard pull is usually minimal if you have good credit. Small movements in your credit score do not really impact your interest rate and fees. This small risk far outweighs the damage done if you wait to do a hard credit pull and then find out at the last minute that you have an issue with your credit score. If you wait until the last minute to do a hard credit pull, there is usually nothing that you can do to fix your credit score. This can lead to a much larger penalty to your rate and fees than the credit inquiry for a hard pull to get pre-approved for a mortgage.

• Privacy Concerns: Sharing detailed financial information through a hard credit pull raises privacy concerns for some individuals. While lenders adhere to strict regulations to protect this sensitive data, the process still involves sharing personal and financial information that may make some people uncomfortable. More importantly, the three credit bureaus will share your credit pull with dozens of other mortgage lenders which will lead to dozens and dozens of robo calls and desperate salespeople. You need to ask your lender to take the necessary steps to avoid you getting these calls.
  
  
• Limited Window of Validity: The credit report generated from a hard pull has a limited window of validity of four months. If home purchase process takes an extended period, lenders may require updated credit information to update your pre-approval, leading to additional hard pulls. To address this concern, Lakeside Bank will use one hard credit pull to get you pre-approved and then make that pre-approval good for a year. Please ask your Lakeside Bank mortgage loan consultant how you can get a pre-approval with a one-year expiration.

Conclusion The pros and cons of a hard credit pull must be weighed carefully. While the temporary impact on your credit score and privacy concerns are valid considerations, the accuracy, precision, and negotiating power provided by a hard pull can significantly benefit your mortgage financing costs. Understanding these dynamics empowers prospective homebuyers to navigate the process with confidence, making informed decisions that align with their financial goals.