Soft credit pulls, by design, are meant to help all parties involved in the mortgage industry. These types of checks are typically done by financial institutions to better understand a borrower's history, as well as assess the risk of extending credit to someone. They reveal things like lines of credit, loans, current credit score, and payment history in an easily digestible, efficient way, which eases the mortgage process for borrowers and lenders alike.
Soft credit pulls benefit homebuyers in a variety of ways. They don't affect credit scores at all — a huge differentiation from hard credit pulls, which can take a few points off simply by conducting the check itself. Another benefit? Loan applicants can feel safe knowing their financial data cannot be sold, and outside companies won't be able to find out they are searching for credit.
The same can't be said for hard credit pulls, which often involve the sale of borrowers' information. This has been a hot topic in Congress, where the
It's not uncommon for potential homeowners to apply for loans just to test their eligibility, qualifications, affordability, and options. If these applicants are only trying to gauge the price range of the mortgages and homes available to them, it's possible they may not go through with an actual loan at all. With soft credit pulls, this won't lead to expensive consequences, thus removing the friction between borrowers and lenders that happens when more in-depth preliminary checks occur. By making applicants feel more comfortable in the early stages and opening more of a dialogue between them and their financial institutions, it increases the likelihood of an actual deal being made.
Lenders, on the other hand, experience a range of benefits by opting for soft credit pulls, rather than the expensive and time-consuming process of hard inquiries. For one, the price of the process itself is dramatically lower. Starting in 2023, there have been
These increases come during a difficult time for an industry already dealing with significantly high costs to originate. Typically, lenders absorb most of the costs during fallout — when applicants back out of a mortgage or are declined. To put things into perspective, a hard credit file can cost lenders anywhere from $50 and up, while a soft credit file goes for just $2 or $3. With $1.69 trillion in originations
Besides reduced costs, lenders gain a big competitive advantage when they utilize soft credit pulls. By enhancing the borrower's experience and making the process more seamless, financial institutions have the opportunity to stand out. Applying for a loan can be a difficult and stressful process, so it makes sense that most people would want to partner with a lender who makes the process easier. In turn, financial institutions that conduct soft inquiries will see a much higher conversion rate, which simply means they can turn potential homebuyers into actual borrowers.
In just a matter of months after making the feature available, roughly 45% of all the credit checks on the Blend platform are now soft inquiries. It's a true win-win for everyone involved in the mortgage process, from future homeowners to the financial institutions helping them get there.