Hard VS Soft Credit Inquiries

Frustrating as it may be, applying for a business loan (or other sources of funding) can have a negative effect on your credit. Knowing the difference between soft and hard credit inquiries can help you keep your credit score intact while going through the loan shopping and application process.

How much can a loan application hurt your credit? And what’s the difference between a hard and soft check? Read on to find out!

What Is A Soft Credit Inquiry?

Soft credit checks (or “pulls”) do not affect your credit.

Soft pulls can be performed without your permission and do not leave a mark on your credit report.

In the lending world, funders often perform a soft pull as a preliminary step to verify identity and see if you are creditworthy enough to qualify for funding. If you are checking your rate via a lender’s website (usually the first step in a lender’s application process), chances are they’re performing a soft pull.

Most lenders will tell you somewhere on the website if the preliminary application affects your score. If in doubt, you can always ask customer service.

What Is A Hard Credit Inquiry?

Hard credit pulls do affect your credit.

These pulls are generally performed before creditors officially extend services or financing to you. Lenders (or other institutions) that perform a hard pull have access to your full credit history, which helps them make a decision regarding whether or not they can serve you.

A hard pull affects your credit in a couple of different ways. First, the inquiry has a small negative impact on your credit score. A hard pull will bring your credit score down by a maximum of five points. Naturally, multiple inquiries will have a larger effect than one.

Additionally, the inquiry is noted on your credit report. The inquiry drops off after two years, but in the meantime, future creditors who look at your report can see who else has been looking at your score.

Some lenders have limits regarding a number of inquiries a credit report can have. If you have too many inquiries on your report, you might find it more difficult to get funding.

Hard pulls cannot be performed without your permission. That doesn’t mean you’ll never be surprised by a hard pull — many lenders hide the agreement in their terms and conditions (or an equivalent agreement). Although there are a few exceptions, almost all lenders will run a hard check before extending an official offer to your business.

The Bottom Line On Credit Inquiries

You’ll inevitably need to authorize a hard pull on your credit before receiving loan offers. Fortunately, because so many lenders perform soft pulls before you get too involved in the process, many merchants can find a loan without a significant amount of damage to their credit score.

Ready to get a loan? Make sure you’re prepared. Start off by checking your business credit score. Next, check your personal credit score. If it isn’t up to par, there are easy ways to improve your credit score before applying for a loan.

Finally, if you need funding now but don’t have perfect credit, check out bad credit business loan options that can help you get the funding you need.