All lenders will check your credit score before qualifying you for a business loan, but not all credit checks are the same. In fact, some may even hurt your score and decrease your chances of getting a loan. Here is an overview of the two types of credit checks (“Hard” and “Soft”) so you can understand the differences.
Spoiler alert: Lendified only performs soft credit checks, which won’t affect your credit
Hard Credit Checks
A hard credit check, also know as a “hard inquiry”, is the process of obtaining a detailed credit history on you. This activity is shown on your credit report and typically decreases your credit score. It also signals to lenders that you are either shopping around or have struggled to get the money you need (if you have a lot of past credit checks, but no loans).
According to Equifax, “Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit report for up to 36 months.” This happens whether or not the lender approves your application, so it’s important to limit the amount and frequency of credit applications you complete that involve a hard credit check.
Hard credits check are common with applications for:
- Traditional bank loans
- Credit cards
- Auto loans
Soft Credit Checks
Unlike a hard credit check, a soft credit check (also known as a “soft inquiry”), provides the lender with only basic information including your credit score. This process is similar to when you check your own credit and does not affect your score. In fact, soft checks aren’t tied to a specific credit application. They’re only visible to you whenever you review your own credit reports.
Soft credit checks are common with applications for:
- Rental apartments
- Background checks (for employment opportunities)
Not all small business lenders use this approach, but Lendified has committed to only performing soft credit checks so you can have the peace of mind that your credit won’t be affected.
Find out the type of credit check required before you complete a loan application. If it involves a hard inquiry, check your credit with one of the credit bureaus to make sure you meet the lender’s minimum requirements. Otherwise, you could unnecessarily hurt your credit score.
Also, make sure you work on building your credit score so you can improve your chances of getting the capital you need for your business. Here are some good credit practices to help you do that!