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Student loans are often one of the first major debts to show up on your credit score. Like any other type of debt, such as a personal loan or credit card, student loan rates are affected by your credit score, whether it’s good, bad or non-existent.
The most common way for lenders to approve you for a loan is to do a credit check — but certain credit checks themselves can affect your credit score. Knowing the difference between hard and soft credit checks, also known as credit pulls or credit inquiries, can help you navigate the application process and protect your credit rating.
Why and When Credit Pulls Happen
Here’s the key difference to know:
- Soft credit pulls do not affect your credit score.
- Hard credit pulls do affect your credit score.
Think of a soft credit pull as a peek into your credit. Lenders can get an idea of your credit habits and your ability to pay off the loan. Because there is no effect to your credit score, some lenders, such as credit card companies, can even do a soft credit check without your knowledge so that they can send you those unsolicited “pre-approved” offers you get in the mail.
When it comes to your student loan applications, your best bet is to ask a lender to do a soft pull that can pre-qualify you for a loan. This does not guarantee a loan approval or lock down rates, but it will give you an idea of what you might be approved for and at what rate.
Hard credit pulls come later when you are formally applying for a loan. In this case, the lender will reach out to the credit bureaus and get a detailed look at your credit score, including what debt you may already have and whether you make your payments on time and in full.
The hit to your credit score won’t be concerning for one hard credit pull — myFico estimates that one credit check will take off just 5 points or less. But when you are applying for multiple student loans trying to get the most money with the lowest interest rate, that could negatively affect your score.
Do All Your Student Loan Shopping Within a Short Time Frame
One of the best ways to minimize damage from multiple hard credit inquiries as you apply for student loans is to submit all your applications close together. You should also apply for the same amount every time, if possible.
This lets the credit bureaus know that you are rate shopping and not taking out loans because you are in financial distress. Once they know you are shopping around, they can combine each credit check into one hard inquiry that will have much less of an impact to your credit score.
This requires you to do some homework ahead of time. Soft credit pulls can help you get an idea of how much you might be able to borrow, but you should already have an idea of how much money you need from research into your preferred colleges.
Be Smart About Your Credit Score
The best way to get approved for the money you need, at a rate you can afford, is to do all you can to boost your credit score and keep it as high as possible.
Your payment history and credit utilization rate are much more important in determining your credit score, according to Experian, than how many hard credit pulls you accumulate while applying for a student loan. To keep your rating high and look attractive to lenders, make sure you pay your bills in full and on time. You should also minimize or pay off credit card debt.
Before you apply for a student loan and periodically after, check your own credit report to make sure there are no fraudulent hard inquiries in your name. Self credit checks are a soft pull, so they won’t affect your score.
Hard credit pulls stay on your report for two years, so if you see a pull that you didn’t authorize you can ask the bureau to remove the inquiry from your report and/or reverse the points they may have taken off your credit score.