When looking for business credit, the first thing you want to do is make sure your credit score is strong. This way, you can fill out a line of credit application with confidence, knowing you’re putting your best foot forward.
Lenders want to ensure that your business can financially handle whatever you’re applying for based on your credit history. Making this call often comes after a soft or hard credit inquiry is performed. Understanding the key differences between a soft credit check and hard credit check is important so you know exactly how submitting an application will impact your business credit.
If you don’t know which kind of credit inquiry to expect, you could jeopardize your business credit unnecessarily. Thankfully, lenders must disclose which type they use.
Let’s take a closer look at soft credit checks vs. hard credit checks to help you understand how personal and business credit scores factor into applying for a business line of credit or loan. This article will explain the differences between these two types of credit pulls, why those differences matter, and how each type of inquiry may affect your business credit.
When will I receive a credit inquiry?
A lender may check your score when you apply for a loan, mortgage, or credit card to decide whether or not you qualify. This is done by requesting a copy of your credit report from a business credit bureau, which contains information about how you handle debt.
Your credit report also includes an inquiry section detailing when lenders have requested a copy of the report. This inquiry section can provide insight into the kind of credit you’re likely to get.
In most cases, lenders will pull your credit report when you apply for a loan or credit card. Lenders assess your risk as a borrower and determine whether or not they should grant you the money you’re asking for.
If you’re leasing warehouse, storefront, or office space, landlords may also pull your credit report when reviewing your rental application. Landlords often review this information to determine whether your business is financially responsible and likely to pay rent on time.
What is a soft credit check?
A soft credit check is a credit inquiry method that does not impact your credit score. This is the best way for someone to check their credit score without worrying about hurting it.
Knowing what a soft pull is can help you understand what information a lender might have access to when reviewing your application. Be mindful of what types of inquiries are being made and what information they may reveal.
Soft credit inquiry examples
- Some lenders will make a soft credit inquiry to verify your identity. This inquiry does not affect your credit score and is used only to ensure that you are who you say you are.
- Insurance companies may perform soft credit inquiries during the application process to help determine premiums. Credit bureaus do not see these inquiries, so they will not affect your credit score.
What is a hard credit check?
What is a hard pull on credit? Usually, a credit check will include information such as your personal and contact details, the types of accounts you have open, and your payment history on those accounts.
A ‘hard pull’ or ‘hard inquiry’ on your credit report occurs when creditors or lenders request to view your entire credit history. These requests for credit information are usually made to determine your ability to repay debt and what kind of credit terms they want to offer you.
Hard credit inquiry examples
- Applying for a mortgage: A lender will need to check your credit score and full history to determine whether your business is eligible for the mortgage.
- Applying for business credit: If you are applying for a new line of credit or a business credit card, this will also require a hard pull on your credit. Some lenders may perform a soft pull at the time of application, but a hard pull will be required if you’re approved and accept the terms.
Do soft credit checks affect my credit score?
Soft credit checks have no impact on your credit score. A soft credit check is an inquiry that does not harm your credit rating, also known as a ‘soft pull’ or ‘soft inquiry.’
When you apply for a business loan or credit card, lenders typically perform a hard inquiry on your credit report. Unlike soft inquiries, hard inquiries have the potential to temporarily lower your score by a few points.
How long do credit inquiries stay on my credit report?
Generally, a credit inquiry will stay listed on your credit report for up to two years. If a lender or creditor looks at your credit report, they can see any inquiries from the past 24 months.
It’s important to note that there are different types of credit inquiries, and the length of time each remains on your credit report can vary. For example, hard inquiries (such as those made when you apply for a loan or credit card) can remain on your report for two years.
On the other hand, soft credit inquiries (such as those made when you check your credit or when a lender checks your credit to pre-screen you for an offer) do not appear on your credit report and don’t affect your score.
Will applying for a business line of credit impact my credit score?
The simple answer is: Yes, applying for business credit could impact your credit score. However, the dip may not be as dramatic as you think.
Some lenders only perform a soft credit pull when you apply for a line of credit. This can vary depending on the lender, which type of business you operate (such as an LLC versus a sole proprietorship), and what kind of credit you’re applying for.
If you’re approved for a business line of credit and decide to accept the terms, your lender will then perform a hard credit inquiry to check your credit report more comprehensively. This hard credit check can knock a few points off your score, but don’t worry––the decrease is only temporary, and the impact will be minimal if you already have a good credit history and manage your new credit responsibly.
Even if your initial application results in a slight dip in your score, remember that the primary benefit of applying for a business line of credit is that it can help you establish and build business credit. With a stronger business credit profile, you’ll be able to qualify for more favorable rates and terms on future financing.
If you’re considering applying for a business line of credit, remember that it could impact your credit score. Be sure to check with lenders whether they’ll perform a hard pull immediately or wait until after you’ve accepted their terms.
