Business Credit
3 business scenarios that need money to make money
When a potential lender formally inquires about your credit, it's called "pulling your credit." But there are two types of inquiries that can occur: a hard pull and a soft pull.
The differences may vary in circumstance. A soft pull usually results from monitoring your own reports or getting a loan prequalification, and a hard pull occurs when a lender checks your credit, typically to loan your business some money.
The key difference: Hard inquiries are typically used when you ask for credit, and these can impact your credit scores in some cases. Soft inquiries generally won't affect your credit.
Business credit: Companies may want to access a loan applicant's business credit report as part of the approval process or routinely check existing supplier and vendors' business credit reports. Companies use these reports to manage risk by evaluating the financial stability of other firms and deciding whether to continue doing business with them. Unlike a personal credit report, they don't need permission to access your business credit report - they simply need to pay a fee.
Personal credit: In the business world, lenders may perform a hard or soft pull on your personal credit if a personal guarantee is required. A personal guarantee is an agreement you make with a creditor to make payments from your personal funds if your business can't. When the lender checks your personal credit report, it will see your payment history, balances on current debts, recent hard inquiries, and more. If your personal credit isn't healthy enough to meet a lender's standards, your application for a business loan may be declined.
It's up to each credit bureau to classify between hard and soft pulls and whether to calculate them into the business credit score. Here's how each bureau handles hard pulls:
Inquiries are listed on your Equifax business credit report along with the date accessed and a note that indicates whether the inquiring business is classified as a financial or nonfinancial entity. Equifax's Credit Risk Score focuses mostly on your company's payment history and financial data, and checking your own report won't influence your score. However, an increase in the number of hard inquiries may negatively impact your score.
When a company accesses another company's Experian business credit report, it's considered a hard inquiry. Inquiries are listed on the credit report along with the month and year the report was accessed and a supplier category that classifies the inquiring business. However, inquiries won't impact the Experian Intelliscore Plus V2 and Financial Stability Risk scores, according to Experian.
You won't have to worry about inquiries in general when it comes to your Dun & Bradstreet credit report. That's because D&B doesn't differentiate between a hard or soft inquiry. Furthermore, its PAYDEX score is based solely on your payment history with lenders, so inquiries won't impact your D&B score either way.
People who want to check your personal credit to make a lending decision will need to show the credit bureaus they have a valid reason to check your credit. Hard inquiries are listed on your credit report for two years, and they may ding your personal score by a few points. A handful of hard inquiries may have a larger impact than just one, though.
Creditors perform soft pulls for several reasons. They may use your personal credit report as part of a loan prequalification, a routine review of an existing account, an insurance application process, or an employment background check.
Individuals with a valid reason for checking your credit may perform a soft pull without you knowing about it. The good news is they generally don't affect your personal or business credit. However, whether a soft or hard pull, whoever performs the inquiry will have access to information on your credit report. That information may be used to inform decisions, such as whether you qualify for a loan, so inquiries may impact your business, even if they don't impact your credit.
Checking your own credit, whether business or personal, is considered a soft inquiry. Monitoring both types of reports can help you understand your credit scores and find and get rid of errors.
You can check your personal credit reports from the three personal credit bureaus for free once a year at AnnualCreditReport.com. You'll have to pay to check your business credit reports through the three main business credit bureaus. Or you can check some of the same credit scores for free by signing up for an account at Nav.com, an online resource for small-business financing advice. Nav gives you free access to your Experian Intelliscore Plus V2, Dun & Bradstreet PAYDEX, and FICO SBSS scores.
There are also ways to see who else has accessed your business' credit reports. Through Dun & Bradstreet, you can sign up for free alerts that tell you when a business has requested your report, along with some information about the business. Experian also offers its own version of this service. Or, you can get some of this information from the inquiries listed on your business credit reports.
You can tell who has accessed your personal credit report by checking the inquiries section of your reports, where the hard inquiries are listed. Soft inquiries are listed as well, but only you can see those.
Soft and hard inquiries are used for different purposes. Soft inquiries won't impact your credit scores, but they will show how you or your business has managed finances in the past - so be sure to check your own credit score regularly! Hard inquiries will affect your personal credit and may impact your business credit in some cases. But by checking your own credit reports and fixing any errors, you can improve your business' chances of being approved for credit.
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