Hard Inquiry
Contents
Navigating the World of Credit: Understanding Hard Inquiries
Deciphering Hard Inquiries
1. Definition: A hard inquiry, also known as a "hard pull," refers to a comprehensive credit information request utilized by lenders to assess your creditworthiness when applying for credit or loans.
2. Impact on Credit Score: These inquiries trigger a temporary decrease in your credit score, which can persist for up to two years, particularly if multiple inquiries occur within a short timeframe.
3. Credit Bureau Reporting: Hard inquiries entail a full credit history review from one of the top credit bureaus, such as Experian, TransUnion, or Equifax, influencing lenders' decisions regarding credit extension.
Distinguishing Soft Inquiries
1. Soft Inquiry Definition: In contrast to hard inquiries, soft inquiries entail less detailed credit information and do not affect your credit score. They are commonly used for background checks, prequalification approvals, and personal credit report requests.
2. Examples of Soft Inquiries: Free credit report requests, prequalification approvals from lenders, and background checks by landlords and employers are typical instances of soft inquiries that do not impact credit scores.
Factors Affecting Credit Underwriting
1. Qualifying Ratios: Creditors assess not only credit scores but also qualifying ratios, such as debt-to-income ratio and housing expense ratio, to determine creditworthiness. The 28/36 rule is often employed, requiring debt-to-income ratios of 36% or less for loan approval.
2. Technology in Underwriting: Customized technology and underwriting processes play a pivotal role in generating loan approvals based on a holistic evaluation of credit reports and qualifying ratios, with varying emphasis across different types of loans.
3. Mortgage Loan Criteria: Mortgage lenders typically set minimum credit score requirements and scrutinize housing expense ratios in addition to debt-to-income ratios, ensuring borrowers meet stringent criteria for loan approval.