Hard VS Soft Credit Inquiries
When applying for funding, a lender will initiate a hard or soft credit pull. Find out what this means and how it will impact your credit score.
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Key Takeaways
- Soft credit pulls, often used in preliminary loan applications, do not impact your credit score.
- Hard pulls, which occur when a lender is close to offering you credit, can decrease your score and are visible on your credit report for two years.
- While hard inquiries are necessary for loan approval, too many can hurt your credit score.
Frustrating as it may be, applying for a business loan or other 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!
Table of Contents
What Is A Soft Credit Inquiry?
Soft pulls do not affect your credit score and are only visible to you, not lenders.
In the lending world, funders often perform a soft pull as a preliminary step to verify identity and see if you’re likely to qualify. 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, ask the lender directly.
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 decide whether to approve your application.
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 typically lowers your credit score by a few points — often around five or less.
Additionally, the inquiry is noted on your credit report. The inquiry drops off after two years, but in the meantime, future creditors can see recent inquiries on your report.
Some lenders limit how many recent inquiries they’ll accept. 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 said, you may still 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, many lenders will run a hard check before extending a final 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 borrowers can find a loan without significantly impacting 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.
Jason Vissers
Expert Contributor at Merchant Maverick
Jason has been writing about small business software platforms, services, and financing since 2015. Jason’s expertise has been featured in Yahoo Finance, Time/NextAdvisor, Home Business Magazine, CreditCards.com, GoBankingRates, TheLadders.com, and other publications. He has a bachelor’s degree in Political Science from San Diego State University.
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