In general, soft pulls are classified into two standard terms. Prescreen and Prequalification. Both do not affect your consumer credit report because they are not an application for credit.
A prequalification soft pull is a request to be prequalified to apply for credit. A prescreen soft pull is a non-consumer initiated offer of credit typically sent without your knowledge. Both do not affect your credit score and do not show other credit providers or lenders you have been shopping for credit.
A soft pull or soft inquiry is used when a lender or finance source requires access to a consumer credit file to decide to extend credit. A consumer credit file consists of a consumer's financial data collected over time and stored by one or more of the three major credit reporting agencies. In the United States, those are Experian, TransUnion, and Equifax. Your data can be accessed when you apply for a form of credit from a bank, auto dealer, or other lending sources—the same way one would use a traditional hard pull or hard inquiry. The difference is, a hard pull or hard inquiry is used when an applicant is applying for a line or form of credit, whereas a soft pull is not an application for credit but an application to apply for credit.
Your consumer credit file is used by lenders to determine a consumer’s creditworthiness or credit risk and is typically accompanied by a credit score. Your credit score is calculated by factors such as previous repayment history of financial loan obligations or debt. Those accounts and debt can consist of everything from your mortgage loan, car loans, revolving charge cards, etc. A stable repayment history shows creditworthiness, whereas a poor repayment history shows credit risk. Your credit score is like a summary of your credit history. There are many different types of credit scores determined by the kind of credit a consumer is requesting.
Your credit file can be requested by an authorized business or institution subscribed to one or more of the credit reporting agencies mentioned above. These subscribers consist of industries such as banks, car dealers, and credit card companies. Many different industries may request access to your credit file. They can include solar contractors, funding sources, equipment dealers, medical and dental services, debt consolidation, orthodontics, student loans, hearing aide financing, home improvement, security systems, payday loans, and many others.
So what do you need to know about Prescreen soft pulls?
Some soft pull processes do not require consumer consent and are a set of criteria requested by a subscriber and submitted to the credit bureau or bureaus of choice. This type of soft pull criteria is typically called a prescreen. It can consist of your ability to repay debt, how much debt you hold vs. how much money you earn, have available, or if you have had outstanding debt from the past, how long ago it was, and so on. This and more can be used to set up a match by the subscriber requesting information.
For example, when you receive a pre-approved or prequalified offer of credit in the mail, a business with a permissible purpose to access your credit file paid to receive a list of names that matched their criteria. They then create a campaign to send the offer to those meeting the submitted criteria. These campaigns don’t have to be done by mail, even though that is still the most common way to distribute offers to millions and millions of US consumers every year. It may also be done by phone, in person, or online as well.
A business can do this without your knowledge because they are required by the Fair Credit Reporting Act (*FCRA) to offer you a form of credit in the way of an amount, term, APR (financing rate), etc. You must also be presented with the ability to opt-out from future offers as well. You are not obligated in any way to do business with the company sending the offer of credit. As mentioned, this type of soft pull is most often referred to as a prescreen or prescreened offer of credit.
The other most common type of soft pull is consumer consent-based and is typically initiated by a consumer wanting to know if they qualify for a credit card, auto loan, home improvement loan, etc. before submitting a full credit application. You’ll find these types of soft pulls on websites like auto dealerships, say on a “Get Prequalified Now” website application page, or a bank website like Chase or Bank of America. The tag line might read, “Won’t Hurt Your Credit, Apply Now!” to entice you to apply for a credit card. These require you to provide consent to apply for the offer suggested by the business. These soft pulls are most often referred to as a prequal or prequalification for credit. These soft pulls are becoming more and more popular because as a prescreen requires an offer of credit, prequalification soft pulls are initiated by you, the consumer. Even though neither will affect your credit score, prequalification soft pulls may be more attractive because you have the control of your credit file being accessed.
Credit monitoring sites such as Credit Karma also use soft pulls to provide you with updates to your credit file, as long as you signed up authorizing them to do so.
What happens when I request to be prequalified?
When you request to be prequalified for credit, the business or service will access your credit file and make a prequalified decision to extend credit. This decision can take as few as a couple of minutes up to days or longer to receive an answer. Depending on the guidelines of the business, the amount of credit requested, and many other factors, they may or may not chose to extend credit. The decision is typically based on the data returned in your current credit file and credit score. Because you consented, the company and yourself are under no obligation to do business. Either party can decide to walk away at any time before signing a contract.
In conclusion, if you have the option, choose to have a credit provider or potential lender do a soft pull first over a hard pull. You will avoid creating an inquiry like stated above. Remember, an inquiry is you shopping for credit. Inquiries are placed on your credit report when you apply for credit and remain a part of your credit profile for at least two years. Too many inquiries on your credit report can negatively affect your credit score. That along with making too many requests for credit will also adversely affect your credit score as well.
* The Fair Credit Reporting Act (FCRA) is a federal law that helps to ensure the accuracy, fairness and privacy of the information in consumer credit bureau files. The law regulates the way credit reporting agencies can collect, access, use and share the data they collect in your consumer reports.- Experian, Understanding the Fair Credit Reporting Act
My soft pull is an educational resource sponsored by Credit Bureau Connection to inform people about soft pulls and how they are used in the lending process. Credit Bureau Connection (CBC) is authorized by all three major credit reporting agencies, Experian, TransUnion, and Equifax and specializes in soft pull credit report solutions.