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Updated: March 27th, 2020
Establishing business credit is an important part of growing any company. As you begin to manage your business’ credit, you may encounter the term “soft pull” or “soft inquiry.”
This simply means someone has checked your credit report. A soft pull usually results from monitoring your own reports or getting a loan prequalification, while hard pulls result when a lender checks your credit as part of an official lending decision.
Lenders may base credit decisions on the information they find in both personal and business credit reports, so it’s important to know how soft pulls work for each.
A soft pull may occur for various reasons, including when a lender accesses a personal credit report as part of an employment background check, or for insurance purposes, a loan prequalification, or a routine review of an existing account. In the business credit world, a company can purchase another company’s business credit report, which is considered an inquiry. It’s up to each credit bureau to classify between hard and soft pulls and whether to calculate them into the business credit score.
Although soft pulls generally don’t affect your personal and business credit, whoever performs a soft pull will have access to the financial information on the report. That information may be used to inform decisions, such as whether you qualify for a loan, which in turn affects your business (but not your credit).
Lenders and other entities generally perform soft pulls on business and personal credit reports to verify a borrower’s creditworthiness.
Business credit: Landlords, customers, and other entities may check your business credit report to verify your creditworthiness and manage their risk. That’s because companies might not have an existing business relationship with you to assess your business’ credibility. Unlike a personal credit report, a business doesn’t need permission to access another business’ credit report. But typically, a company will have to pay the business credit bureau for access to a report.
Your business credit report includes extensive information about your company such as
payment history, the number of people it employs, and what type of business it is. Accessing that information helps other firms decide whether to do business with your company, set credit terms aligned to your company’s risk profile, and more.
If you’re already doing business with vendors and clients, they may check your business credit reports regularly to look for a decrease or increase in your score and monitor your business’ stability.
Personal credit: Your personal credit report includes information such as payment history, credit utilization, inquiries, and more. Lenders and other entities use soft pulls to preapprove people for loan offers, conduct employment background checks, and to approve certain insurance applications, amongst other use cases. Only you can see soft pulls, so they don’t impact your personal credit.
Checking your credit reports and scores is the best way to monitor your credit improvement and fix wrong information. According to Nav, an online resource for small-business financing advice, business owners are 41 percent more likely to be approved for a business loan when they understand their scores.
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 business credit bureaus. Or you can check your Experian Intelliscore Plus V2, Dun & Bradstreet PAYDEX, and FICO SBSS scores by signing up for a free account at Nav.com.
Each of the three main business credit bureaus has its own method of calculating your business credit score:
As a business owner, Dun & Bradstreet allows you to see who has accessed your business credit report through its free CreditSignal account. Though you can see the inquirer’s industry, you won’t be able to see the specific name of the inquiring customer. Experian Business also offers alerts that tell you when a business has accessed your credit report. The name of the company won’t be displayed, but the supplier category on the type of business will show, for example, “bank” or “leasing,” according to Experian.
When you apply for a business loan or credit card, the lender may require a personal guarantee. That’s an agreement you make with a lender acknowledging you’ll make payments from your personal funds if your business can’t.
Lenders that require a personal guarantee will typically perform either a soft or hard pull on your personal credit. A soft pull won’t affect your personal credit, while a hard pull will. Either way, the lender will be able to review your personal payment history, account balances, hard inquiries, and more, and it could make a credit decision using that information.
When making decisions about your business, lenders may inquire into your personal and business credit reports. Soft inquiries won’t impact your credit scores, but they will shed light on how you or your business has managed finances in the past. You can stay ahead by monitoring your credit reports, ensuring the information is accurate, and fixing any errors.
Paige Smith is a Content Marketing Writer and Senior Contributing Writer at Funding Circle. She has a bachelor's degree in English Literature from Cal Poly San Luis Obispo, and specializes in writing about the intersection of business, finance, and tech. Paige has written for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.