When Applying for a Loan, What Affects Your Credit & What Doesn’t?

Nov 7, 2022

Your credit history and three-digit personal credit score are important parts of your small business’s profile. They affect whether or not you qualify for a small business loan, SBA loan, commercial real estate loan, or other credit product. They also affect what kinds of rates and terms you are offered. It’s common knowledge that paying (and not paying) your business debt affects your credit, but sometimes applying for loans and credit cards can impact your credit, too.

When does applying for small business financing affect your credit? Which parts do, and which don’t? Learn the difference, and what steps to take for a smooth small business loan process.

What is a soft pull on your credit?

A soft credit inquiry, also called a “soft pull”, occurs when someone checks your credit score. This happens when you check your credit report to keep track of your personal financial health (which you should do once a year). It also happens when a small business lender or credit card company checks your credit to see if you qualify for their service.

A soft pull does not affect your credit score.

Prequalifying for a loan is a soft pull.

The prequalifying stage, when you’ve only provided basic information, does not affect your business credit. Why? Because you have not made any commitment, and it’s common for business owners to prequalify at several lenders before choosing one.

What is a hard pull?

A hard credit inquiry, or “hard pull”, occurs after you’ve qualified for the small business loan and moved to the final stages of the application.

A hard pull does affect your credit score.

Why does it affect your credit before the loan is final and funded? Because you are far enough along in the application process that any other creditor you may contact should take that potential new debt into consideration. While it does affect your credit, the change is minor.

Applying for a loan? Don’t forget to unfreeze your credit!

Before a lender can complete your application, you will have to make sure your credit is not frozen. You are the only one who can freeze or unfreeze your credit, so if it’s frozen, you’ll already know. If you forget, the lender will request that you unfreeze your credit when the time comes for a hard pull.

Freezing and unfreezing your credit is free. Visit each of the major credit bureaus to freeze or unfreeze your credit:

You can do a soft pull and check your credit for free once a year at AnnualCreditReport.com.