Every time you or a creditor checks your credit report, credit bureaus log that activity. A hard credit inquiry happens when a lender pulls your full credit report because you applied for new credit, and it can lower your score by a few points. A soft credit inquiry is any other check, such as reviewing your own credit or getting pre-qualified, and it never affects your score.
Knowing the difference will change how you shop for financing, check your own credit, and respond to all those “pre-approved” credit card and loan offers.
Hard vs. Soft Credit Inquiry: The Core Difference
The key distinction boils down to a single question: did you apply for new credit, and did the check happen as part of a lending decision?
- A hard inquiry happens when you’ve formally applied for financing and authorized a creditor to pull your full credit report to decide whether to approve you.
- A soft inquiry happens when your credit is checked outside of an application, such as when you check your own report, pre-qualify for an offer, or a vendor assesses your risk before extending credit.
| Hard Inquiry | Soft Inquiry | |
|---|---|---|
| When it happens | Formally applying for a business loan, line of credit, credit card, lease or equipment financing | Checking your own credit, pre-qualification, vendor risk reviews, an existing lender monitoring your account |
| Affects your credit score? | Yes, typically a small, temporary dip | No |
| Requires your authorization? | Yes | Not always |
| Visible to other lenders? | Yes | No, only to you |
| How long it’s listed | Up to 2 years | Up to 2 years |
| Counts toward your FICO score | For up to 12 months | Never |
Examples of Soft Inquiries for Business Owners
Some common examples of soft inquiries include:
- Checking your own personal or business credit score
- A current business lender or card issuer reviewing your account standing
- A lender pre-qualifying you for a loan or line of credit
- A supplier or vendor running a general creditworthiness check
- A commercial landlord checking credit as part of lease negotiations
- A business insurance provider reviewing credit as part of underwriting
Examples of Hard Inquiries for Business Owners
You could have a hard credit check on either your personal or business credit report, and with business financing, some lenders check both. Common examples include:
- Applying for a business term loan, SBA loan or line of credit at a bank
- Applying for equipment financing
- Applying for a personal or business credit card
- Applying for a commercial mortgage or refinance
- Applying for an auto loan or lease
- Applying for a home equity loan or HELOC from a bank
- Signing a commercial lease that requires a formal credit pull
- Requesting a credit limit increase on an existing account
How Much Does a Hard Inquiry Affect Your Score?
For most people, one additional inquiry takes less than five points off their FICO score, according to myFICO. A hard inquiry stays on your report for up to two years, but FICO only counts it for the first 12 months. Inquiries can weigh more if you have few accounts or a short credit history. You can always check your business credit report to see how an inquiry may have affected your credit.
David Han, Founder of AIStockWire, says, “A hard inquiry… stays on your report for two years, but FICO only counts it toward your score for the first 12 months, and it normally costs fewer than five points.”
One hard inquiry isn’t an issue, but several in a short period can be. “The greater concern,” says Eric Pemper, Founder & Managing Member of CuraDebt, “is making multiple credit applications within a short period because that pattern can suggest that the borrower urgently needs additional financing.” It can also signal that you’re taking on several new obligations at once. Too much new debt can make it harder for a business to meet its obligations, and could even have an impact on your personal credit if you start missing payments. Soft inquiries have no impact on your credit.
The Rate-Shopping Exception
There’s an important exception built into credit scoring: if you’re rate shopping for certain types of loans, FICO groups multiple hard inquiries made within a short window into one. That window is any 14-day span on older versions of the FICO score and any 45-day span on the newest versions. This exists so that comparing real offers doesn’t penalize you for being thoughtful.
That said, FICO applies this grouping to mortgage, auto and student loans. Hard inquiries for business financing or credit cards are typically counted one by one when they land on your report with the major credit bureaus. If you’re comparing business financing, ask about each lender’s process before submitting several applications back to back.
Business Financing and Your Personal Credit
For a lot of small business financing, especially with newer or smaller companies, lenders lean on the owner’s personal credit alongside, or instead of, a business credit profile, since many businesses don’t yet have a credit history of their own. That means a hard inquiry tied to a business loan application can show up on your personal credit report, not just a separate business file, depending on the lender.
This has a few implications:
- Business financing applications can affect your personal credit: Just like you might see an impact on your credit for applying for many mortgages or car loans in a short period, if lenders are pulling your personal file for business applications, it can have an impact.
- Building business credit: Building business credit requires using accounts and lenders that report to business credit bureaus rather than personal ones. Eventually, a stronger business credit profile can reduce how much your personal file is exposed to future financing applications.
- Not all business financing is structured the same way: Some lenders pull personal credit, some pull business credit, some pull both, and some rely on cash flow data instead of a hard credit pull.
Just ask whether a lender performs a hard credit pull and whether it applies to your personal credit, your business credit or both. You don’t want to see a sudden dip in your personal FICO score because you didn’t do your due diligence.
Do You Need a Hard Credit Inquiry to Get Financing?
It’s easy to assume that any application means a hard hit to your credit, but that’s not universally true. Some financing providers, including SBG Funding, look primarily at business performance (revenue history, deposit consistency and time in business) to make a decision. Applying with SBG Funding uses a soft credit pull, not a hard one. That can be especially useful if you want to compare your options, or if you’re rebuilding your credit, without adding another inquiry to your report in the process.
If your credit history is a concern, it’s worth reviewing options built around this kind of underwriting, such as bad credit business loans or no collateral business loans.
How to Check for Hard Inquiries on Your Credit Report
You’re entitled to a free copy of your personal credit report from each of the three major bureaus (Equifax, Experian and TransUnion) through AnnualCreditReport.com. Reviewing your report periodically lets you:
- Confirm that any hard inquiries listed match applications you actually submitted
- Spot unauthorized or unfamiliar inquiries, which can be an early sign of identity theft
- Track how many hard inquiries you currently have and when each will stop affecting your score
If you find a hard inquiry you don’t recognize or didn’t authorize, you can dispute it directly with the credit bureau that’s reporting it. Most bureaus offer an online dispute process, and they’re required to investigate within a set timeframe.
How to Limit Hard Inquiries When You Shop
There are a few things you can do to minimize the impact of hard inquiries when you’re looking for financing:
- Do your research: Understanding a lender’s typical rates, terms and qualification criteria ahead of time reduces the odds you’ll apply somewhere you won’t actually qualify.
- Look for pre-qualification: Many lenders offer a pre-qualification step that uses a soft inquiry, so you can get an estimate of your approval chances and terms before moving forward with a full application.
- Do your rate shopping quickly: When you’re comparing similar loan types, keep your applications close together to take advantage of the rate-shopping exception most scoring models apply.
- Prioritize lenders that don’t require a hard pull: Ask up front, and favor providers whose application uses a soft pull.
Compare Your Options with SBG Funding
A hard credit inquiry is common and usually costs only a few points, but many business owners would rather avoid one while they compare offers. SBG Funding is a direct provider of revenue-based financing and a marketplace offering a broad range of funding solutions through an extensive network of lenders. Options include a small business term loan with fixed payments, plus bad credit business loans for owners with scores from 500. The online application takes about five minutes, decisions often come the same day, and applying doesn’t involve a hard credit pull.
Get Started Today:
- Fill out our online application.
- Speak with a funding specialist to discuss your options.
- Submit your documents and receive funding quickly.
Typical Requirements:
- Four months of bank statements
- Minimum FICO score of 500, six months in business, and $150,000 in annual revenue
FAQs
Up to two years, though FICO scores only count it for the first 12 months.
No. Checking your own credit report or score is always a soft inquiry and never affects your score, regardless of how often you check.
Only if it’s inaccurate or unauthorized. Legitimate inquiries you authorized as part of an application generally can’t be removed early, but they naturally age off your report over time.
It depends on the lender and how the financing is underwritten. Many small business loans, especially for newer businesses, involve a hard pull on the owner’s personal credit. Others rely primarily on business credit or cash flow data instead. Ask before you apply.
No. It depends on the lender’s underwriting process. Banks usually require one; other providers, including SBG Funding, evaluate applications using revenue and cash flow data, and applying uses a soft credit pull.
