New Credit And How It Affects Your Credit Score

Your credit score matters in home loan approval and determining the rate you ultimately receive. Essentially, the higher the score, the lower the interest rate. Why your credit score matters in home loan approval - Lenders use your credit score as a sort of barometer for your financial credibility. The higher your score is, the more credible you are in the eyes of lenders. There are five areas they look at:

1. Whether you pay your bills on time.
2. The amount of credit you’re using considering what’s available to you.
3. The age of the earliest available credit.
4. The variety of credit you have like mortgages, student loans, and credit cards.
5. Your ability to get new credit.

There are two types of inquiries made when applying for new credit, soft and hard, and each of these impacts your credit in different ways.

A soft inquiry (sometimes called a soft pull) is primarily for educational purposes, such as when an employer conducts a background check, or you’re getting preapproved for a home loan. This type of inquiry has no impact on your credit score.

A hard inquiry (or hard pull) happens when you’re attempting to establish new credit, such as getting a mortgage, credit card, student loan, or car loan. A hard inquiry does impact your credit score and lowers it temporarily. Hard inquiries will influence your credit score but not by
an amount significant enough to disqualify you from getting approved for a home loan.