As the amount of money borrowed in the US continues to rise, confidence in the economy is strengthening. According to The Balance, consumer debt reached $4.43 trillion by the end of 2021, a 5.4% annual increase. Although this is a good sign, many Americans still face difficulty when applying for loans. Investigating interest rates, preparing collateral and credit checks are common hurdles that must be overcome. A soft credit check, also known as a soft pull, is often the first step in the process. Here are five things you need to know about soft credit checks:

1. It can be accessed without your knowledge: The data provided through soft credit checks is limited, meaning that details such as bank account numbers are not included. However, it still displays records such as existing loans and collection payment logs. Sometimes lenders may request this information without your permission, as it is a general overview of your credit history.

2. This is a pre-qualification basis: Lenders may also use a soft credit check’s report to assess whether you are eligible for a loan, a process known as pre-qualification. The data collected can then be used to calculate interest rates and other terms of a loan offer.

3. This is enough for some lenders: Some loan providers consider soft credit checks acceptable to level the playing field between people like immigrants and those with moderate or poor credit scores. Non-preferential loans are available to those with a credit score of 500 or less, and generally follow less stringent policies.

4. It serves as a benchmark for insurance: Soft credit checks can also serve as a reference for insurance premium quotes. The data resulting from this type of query is described as a “credit-based insurance score”, and insurance companies can use it to determine fair pricing.

5. It does not affect your credit score: The last important thing to remember about soft credit checks is that they won’t affect your credit rating. This means that you can apply different tactics if you are considering taking out a loan at some point. Monitoring your own credit report is tagged as a soft pull and you can use it to get an idea of ​​how much money you can borrow. You can also inquire with as many loan providers as possible before submitting an actual application. All of this can be done without risking lowering your credit score.

Soft credit checks are a valuable tool that can be used to make better financial decisions. By combining it with a positive mindset and responsible loan management, you can maximize your chances of a more prosperous future.

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