Credit Scores: Hard Inquiries vs. Soft Inquiries
If you’re seeking a loan for your small business, you’ll want to get funds when you need them at the lowest price available. The absolute best way to assure that is to have a stellar credit score.
There are two ways lenders can look at credit scores. They can perform a “hard pull” or “hard inquiry”. Another option is a “soft pull” or “soft inquiry”. Here are some details you need to know to protect your score when seeking a small business loan.
A hard inquiry occurs when you apply for any type of credit like a car loan, a mortgage, a credit card or a small business loan. Investopedia reports that the reason a hard inquiry may lower an individual’s credit score is because someone who has recently applied for new credit is seen as a potentially riskier borrower. According to Myfico.com, “Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports.”
A hard pull might lower your credit score for six months or so by about 5 points. But what if you want to shop around for a specific type of loan? If you apply for the same type of loan (mortgage, car loan, etc.) from multiple creditors within 30 days, FICO will generally treat all of those applications as a single inquiry.
Also important to note is that hard pulls stay on your record. This means creditors down the line will be able to see any loans you applied for on your credit report, even if you didn’t actually take the loan or the credit card. The bottom line? Don’t apply for credit unless you plan to use it.
A credit report check that does not affect an individual’s credit score is a soft inquiry, also called a soft pull. This occurs when you check your own credit report, when you give a potential employer permission to check your credit, when financial institutions you already do business with check your credit and when credit card companies that want to send you preapproved offers check your credit. You can see any soft pulls on your credit file when you check your own credit report. They will be under a subheading like “inquiries that do not affect your credit rating,” and you’ll see the requester’s name and the inquiry date.
SmartBiz performs a “soft pull” during the prequalification process that will not affect your credit score. If you’re a small business owner seeking funds to grow your business, an SBA loan has low rates and a 10-year term. Visit SmartBiz today and discover in about five minutes if you’re qualified for an SBA loan. Use the promo code “blog” and receive $500 off of your closing costs.