Credit Reports: Hard Pull vs. Soft Pull and Student Loan Refinancing

Michael Lux Blog, Refinance, Student Loans 0 Comments

A repeated headache for many student loan borrowers has been lenders looking at credit reports.  The credit report is the key document that shows a perspective borrowers current debt, payment history, and credit score.  The better a credit report looks, the better the odds of scoring a good rate on your student loan refinance.

There are two ways in which a credit report can be accessed.  One is a hard pull and the other is a soft pull.  These are often also called a hard inquiry or soft inquiry.  Typically a soft pull is done in order to tell borrowers what rates they qualify for, while a hard pull is done before the loan is disbursed.  However, different lenders may approach their process differently.

What is the difference between a hard pull and a soft pull?

The main difference is that a hard pull is reported on your credit report and can affect your credit score while a soft pull has no impact on your credit score.  Lenders want to know if someone is frequently applying for new lines of credit because this behavior could indicate that a loan is more risky.

Soft pulls are commonly done by creditors who are sending out “pre-approved” offers.  Other examples of soft pulls include an employer checking your credit as part of a background check or an individual checking their own credit score.

A hard pull should only be done with a borrowers consent.  The purpose behind a hard pull is for final credit approval on a loan, such as mortgage, auto loan, or student loan.

How much does a hard pull hurt my credit score?

According to NerdWallet, a hard pull will deduct at most 5 points off an individual’s FICO score.  Additionally, as long as the credit inquiries are done within a 30 to 45 day window, multiple credit checks are treated as a single hard pull.  This allows consumers to shop around to find the best rate without it hurting their credit score.  However, if you are checking your rate every two months, it will negatively impact your credit score.

Do student loan refinance companies do a hard pull or a soft pull?

Most lenders advertise that potential customers can check their rates without it affecting their credit.  These applications that lead to soft pulls typically only take a few minutes to complete.

However, for a loan to eventually be funded, a hard pull must be completed.

Have there been issues with lenders doing a hard pull instead of a soft pull?

Over the years we have heard a number of complaints from readers who felt a lender pulled their credit without their consent.  There are a number of reasons that this may have occurred:

  • Lender error – If a lender submits the information to the credit bureaus and inadvertently indicates that it is for a hard credit pull, a hard credit pull could end up on your credit report.
  • Borrower confusion – Most lenders make a big deal about consumers being able to check their rates without it affecting their credit score, but as they proceed through the process to get a new loan, a hard pull must eventually be conducted.  Lenders may not be as clear about when this step takes place.
  • Credit Bureau Error – After seeing that Equifax failed to secure the personal information of millions of Americans, it probably isn’t safe to assume that these credit bureaus avoid mistakes.  A lender may properly request a soft inquiry, but the credit bureau could potentially classify it incorrectly.

Should I be concerned about a hard pull on my credit report?

For most borrowers, the distinction between a soft pull and a hard pull really shouldn’t matter.  If you are refinancing your student loans, you will have to do at minimum one hard credit pull.  Because consumer laws dictate that borrowers are allowed to shop around for the best rate, there is no damage to your credit report if their are six hard pulls instead of one.  The key is to keep credit inquiries within the 45 day window.

Additionally, the five point drop in credit score due to a credit inquiry is relatively minor.  The difference between a credit score of 736 vs 731 likely will not affect the rate you are able to qualify for on a loan.  Further, the impact of a hard pull on your credit report is also short-term.  As time passes, the negative impact on your score drops.  After two years, the hard inquiry completely falls off your credit report.

Finally, borrowers would be wise to remember the value of a credit score.  The whole reason behind chasing a good credit score is to qualify for better rates when borrowing.  Until you actually take advantage of your credit score, it has no value.  When you refinance your student loans, you take advantage of the work you did to maintain a high score.  Unless you are about to apply for a mortgage or other large loan, the small temporary drop in credit score should not be a major concern.