You might have heard of horror stories from people who were shopping around for loans, and then it took a big hit on their credit score. There’s nothing wrong with looking around and comparing loan options that best fit your business. However, it pays to know what you’ll be dealing with when you start going through the loan application process. Here’s how credit checks can impact your credit score and what strategies you can use to prevent losing points.
When Does Applying For Loans Affect Your Credit Score
The health of your finances (which is in this case, your credit score) will affect your chances of getting a business loan. The opposite is true as well. When you shop around for loans and take on financing, it can also affect your credit score. If you’re not aware of the impact that applying for loans will make on your credit score, chances are you’ll unnecessarily lose points. It will also hinder you from getting the best loan rates. Here’s how you can meander through this system of hard and soft credit pulls to prevent negatively affecting your score.
How Credit Checks Affect Your Credit Score
The following are the types of credit checks that lenders would usually do when you apply for a loan.
Soft Inquiry: Lenders will make a “soft inquiry” on your credit report when you are seeking for pre-approval or an initial rate quote. Soft inquiries do not impact your credit score.
Hard Inquiry: Lenders will make a hard inquiry before the final approval of a loan application. Some online applications trigger hard inquiries. Every hard inquiry deducts around 1 to 5 points from your score.
No Credit Check: Some lenders won’t need to check your credit score, and would evaluate other factors instead when you are applying for a loan.
Most lenders will do a soft pull of your credit history if you are still applying or want to get a quoted rate. After pre-approval, lenders would do a hard credit check if you are going to move forward in the loan application process. The credit check’s impact on your score depends on the size of the loan, type of loan, and the state of your credit health when the check is done. Hard credit inquiries stay on your credit report for a couple of years and are visible to others that check your credit. However, its impact on your credit score wears off in about a year.
Comparing lenders on Bizzloans won’t affect your credit score. You can get a free quote here to compare financial solutions that can help grow your business.
Tips to Avoid Lowering Your Credit Score
Ask Before You Apply
You can ask a lender what type of credit check they will perform. They should inform you if they are going to make a soft or hard inquiry.
If you have listed down the potential loans you want to apply for, pick the best three and take into account the credit checks they might do. The key here is that you choose the best one for yourself and would push through with the loan application process. This is so you won’t have to go through other inquiries that can hurt your credit score.
Minimise Shopping Around For Loans in a Short Period of Time
Each inquiry after applying for a loan can add up, so it’s best to apply to no more than 2 or 3 lenders when looking for a business loan. Applying for too many loans will dent your credit score, because it may show through as you being in financial distress. Keep rate shopping to a minimum to lessen the impact on your credit report.
Don’t Forget Your Personal Credit Score
Lenders will also take a look at your personal credit score besides your business credit. Your personal credit file contains information about the loan applications and credit facilities you have. It will also alert lenders to any missed payments, judgments, and other issues in your financial history.
The best way forward on this is to review your personal credit report regularly and dispute any errors. There are other ways to improve your credit score through the tips on this guide.
Comparing lenders on Bizzloans won’t affect your credit score. You can get the best deals out of hundreds of financial products that perfectly suit your business. You’ll be able to get funding to your account in as quick as 24 hours whether you’re in Australia, New Zealand or the United Kingdom.
