Soft credit searches and effect on credit score

Xamaryn

Hi all,

I'm thinking to try and apply for a mortgage in principle with Nationwide. I just got off the phone with them and they said that applying for this only requires a soft credit search so it won't leave a mark on my credit report or be visible to other lenders.

Great news, but I've had soft credit searches before when looking for car insurance quotes last year, and after doing so I noticed my credit score still went down. At the time I only had one hard search about 6 months prior to looking for the quotes, so it was really surprising. I've also recently had one other soft search with a different mortgage lender to see how much I could borrow and the same thing happened. 

Why is it that soft credit searches reduce your score? My actual credit has been good (regular payments made on time for a number of years).

Thanks

Fighter1986

1. The score you see isn't seen by lenders. They calculate a score for you based on their own criteria and their own scorecard using data you provide on your application and the contents of your credit file (not the score).

The score you see is mostly a marketing tool used to keep you hooked on going back to check, giving them an opportunity to sell you credit products you don't need. 

2. Soft searches are literally invisible to lenders. You can see them on your copy of your report, but lenders can't. 

3. If your "score" changed, it will have been due to another factor. But it's largely irrelevant anyway, since lenders don't see this score.

4. Mortgages use very different lending criteria to all other types of borrowing. Criteria varies from lender to lender, sometimes massively. A soft search decision in principle is a good way to see if you fit into Nationwide's box. If you don't, this doesn't necessarily mean you're in the wrong, another lender may be happy to provide what you want.

TL:DR

When applying for your mortgage you simply need to be sure that

1. You don't have any debt

2. You've had no adverse credit history in the last three years
3. You're not asking to borrow over 4.5x your provable, stable basic annual income 
4. You have a good deposit (15%+)

Xamaryn

Fighter1986 said:

1. The score you see isn't seen by lenders. They calculate a score for you based on their own criteria and their own scorecard using data you provide on your application and the contents of your credit file (not the score).

The score you see is mostly a marketing tool used to keep you hooked on going back to check, giving them an opportunity to sell you credit products you don't need. 

2. Soft searches are literally invisible to lenders. You can see them on your copy of your report, but lenders can't. 

3. If your "score" changed, it will have been due to another factor. But it's largely irrelevant anyway, since lenders don't see this score.

4. Mortgages use very different lending criteria to all other types of borrowing. Criteria varies from lender to lender, sometimes massively. A soft search decision in principle is a good way to see if you fit into Nationwide's box. If you don't, this doesn't necessarily mean you're in the wrong, another lender may be happy to provide what you want.

TL:DR

When applying for your mortgage you simply need to be sure that

1. You don't have any debt

2. You've had no adverse credit history in the last three years
3. You're not asking to borrow over 4.5x your provable, stable basic annual income 
4. You have a good deposit (15%+)

Thanks for all this information.
For the full mortgage application, surely I'd only be allowed to borrow up to the amount agreed in principle, no? 

D3xt3r5L4b

Possibly. Maybe more if you ask for it. 

[Deleted User]

Xamaryn said:

For the full mortgage application, surely I'd only be allowed to borrow up to the amount agreed in principle, no? 

No.

A DIP is only a rough guide.

Xamaryn

Deleted_User said:

Xamaryn said:

For the full mortgage application, surely I'd only be allowed to borrow up to the amount agreed in principle, no? 

No.

A DIP is only a rough guide.

Hmm, kinda makes the DiP a bit...misleading 😕
Okay so if I were to apply for this DiP there would be nothing stopping me from applying to many other ones from other lenders, right?

[Deleted User]

Correct.  But you would be better off using a more targeted approach.

Xamaryn

Deleted_User said:

Correct.  But you would be better off using a more targeted approach.

I agree. I'd rather go through an independent advisor when more high LTV products are available but right now that isn't the case. I just feel I could at least go and view properties with a DiP and maybe be a bit more knowledgeable with the whole process.

Fighter1986

Xamaryn said:

Fighter1986 said:

1. The score you see isn't seen by lenders. They calculate a score for you based on their own criteria and their own scorecard using data you provide on your application and the contents of your credit file (not the score).

The score you see is mostly a marketing tool used to keep you hooked on going back to check, giving them an opportunity to sell you credit products you don't need. 

2. Soft searches are literally invisible to lenders. You can see them on your copy of your report, but lenders can't. 

3. If your "score" changed, it will have been due to another factor. But it's largely irrelevant anyway, since lenders don't see this score.

4. Mortgages use very different lending criteria to all other types of borrowing. Criteria varies from lender to lender, sometimes massively. A soft search decision in principle is a good way to see if you fit into Nationwide's box. If you don't, this doesn't necessarily mean you're in the wrong, another lender may be happy to provide what you want.

TL:DR

When applying for your mortgage you simply need to be sure that

1. You don't have any debt

2. You've had no adverse credit history in the last three years
3. You're not asking to borrow over 4.5x your provable, stable basic annual income 
4. You have a good deposit (15%+)

Thanks for all this information.
For the full mortgage application, surely I'd only be allowed to borrow up to the amount agreed in principle, no? 

The amount agreed in principle is likely to be either 4.5x or 4.75x your stable provable annual income, if you haven't any debt elsewhere. Higher multiples are allowed in extreme cases where the borrower has an exemplary credit history and very stable situation, but this is definitely the exception and not the rule. 

Go ahead and plumb your details into a DIP checker and you'll see the amount offered to be around this multiple.