[ad_1]
The uptick in the amount of borrowed money in the US shows no signs of slowing down, signifying strengthening confidence in the economy. To put things into perspective, The Balance details that consumer debt hit $4.43 trillion by the end of 2021, which is an annual increase of 5.4%. It consists mainly of loans and credit card balances.
This doesn’t come without challenges though, as many Americans still have to go through a rigorous process to get approved for a loan. Studying interest rates, preparing collateral, and going through credit checks are the most common hurdles. Among these hurdles, a credit check is typically the first major step. A soft credit check also called a soft pull, is requested in many instances.
To help you prepare for this part, we’ve listed five things you should know about soft credit checks below:
1. It can be viewed without your knowledge
The data provided via soft credit checks is limited. This means details such as bank account numbers are not included, although it still shows records like existing loans and collection payment logs. Given that it’s more of a general overview of your credit history, lenders can sometimes request it without your permission. They may ask for the information directly from credit score providers such as FICO.
- It’s a basis for pre-qualification
Lenders may also use the report from a soft credit check to evaluate if you are eligible for a loan – a process also known as pre-qualification. The data they’ve gathered can then be used to calculate interest rates and other terms on a loan offer.
- It’s sufficient for some loan providers
Some loan providers consider soft credit checks acceptable to give equal opportunities to people like immigrants and those with moderate or bad credit scores. For example, we tackled ‘non-prime loans’ in our article ‘638 Credit Score Good or Bad’ and noted that these are available to those with a credit score of 500 or below. They generally follow less strict policies, and for some people, these programs may just be what they need to get back up on their feet.
Just be sure to consult with lenders to confirm if a soft credit check is sufficient for the approval process.
- It serves as a reference for insurance
Soft credit checks may also serve as a reference for insurance premium quotations. The resulting data from this kind of request is described by Upgraded Points as a ‘credit-based insurance score’, and insurance firms can use it to determine fair pricing. Many items purchased through loans require insurance, such as a house or car, making soft pulls like this a valuable part of the process.
- It doesn’t impact your credit score
The final important thing to remember about soft credit checks is that they won’t affect your credit standing. This means you may apply different tactics if you’re planning on taking out a loan some time down the line.
Monitoring your own credit report is tagged as a soft pull and you may use it to get a sense of how much money you can borrow. You may also inquire with as many loan providers as you can prior to submitting an actual application. This allows them to run a soft credit check to see which products may be applicable to you. All of this can be done without the risk of lowering your credit score.
There are many practical applications of soft credit checks and knowing how to leverage them empowers you to make better financial decisions. Combine it with a positive mindset and responsible loan management so you can maximize your chances of having a more prosperous future.
[ad_2]