How Does a Business Loan Affect Your Credit Score?

You’ve worked hard to achieve a good credit score and start your own business, so what happens to your credit when you apply for a business loan?

How a Business Loan Application Works

Obviously, you need a high credit score to secure the best rates and qualify for the loan, but can that business loan application actually lower your credit score?

It depends on how the lender decides whether or not to approve the loan. Here are three Ways Your Lender Can Check Your Credit and decide to lend you money:

• No credit check
• Soft credit check
• Hard credit check

No Credit Check

Some institutions or lenders may not check your credit at all. They may base their decision on other qualifications such as: the length of time you have been in business, your business revenues, and the way you charge and receive payments.

If your lender approves you without a credit check it will have no effect whatsoever on your personal credit score.

Soft Credit Check

Most lending institutions will at least pull a soft credit history report from the bureaus when considering your application.  This gives them a good summary of your credit history and a way to judge if you are an ok risk to take.

A soft credit check does not hurt your credit score and is not visible to third party lenders that may also check your credit. It will be visible on your personal reports though.

Hard Credit Check

Once you have been pre-approved, most lenders will then do a hard credit pull (requesting your full credit history reports) before finishing the loan process. Some lenders may even do this as a first step instead of a soft credit check.

A hard credit check will affect your personal credit score 1 to 5 points, depending on your initial credit score, the size of the loan, and the type of loan you’re applying for.

It’s important to know that these hard credit inquiries stay on your report for up to 2 years and are visible to third parties!

What Can You Do?

Always ask your lender what type of credit check they will be performing before applying. Also, try to limit shopping around with multiple lenders in order to control the amount of credit checks on your reports. If you can limit the number of hard credit checks to your reports then your personal credit score shouldn’t suffer.

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