Does Applying for a Business Loan Affect Your Personal Credit Score?

The simple answer is yes. Applying for a business loan can affect your personal credit score. The reverse is true as well. Your personal credit score can affect your ability to get a business loan. Yikes!

A lot of small business owners want to know how to get a small business loan with bad credit, and while it’s not easy, there are things you can do to minimize your risk. There are factors to consider, like lenders who do a soft credit check versus a hard credit check. There are even lenders who don’t check your credit at all, but you may get dinged on the interest rate.

Here are some things you want to watch for when applying for a business loan to avoid a hit on your credit.

How Credit Checks Impact Your Credit

A hard credit check can affect your personal credit score anywhere from one to five points. Before final approval, many lenders will run a hard credit check, dinging your credit in a significant way.

Lenders generally perform a soft credit check when you seek pre-approval for a loan or an initial rate. It doesn’t affect your credit score at all. However, it will be affected when you go in for final approval because they need a hard credit check at this time.

Some lenders won’t perform a credit check at all. They evaluate other factors when approving you for a loan, meaning you don’t have to worry about your credit at all; however, consider all aspects of the loan before agreeing to any terms. Often, the interest rate is higher when a credit check is not required.

How Business Loans Hurt Your Credit Score

Getting a business loan with poor credit isn’t easy. It’s important to understand how business loans affect your credit so that you can prepare for the impact. It sounds scary, but as long as you act responsibly when looking for funding, you’ll know what to look for.

Because hard credit checks impact your score every time you apply, it’s important to minimize the number of times you seek approval. Depending on your current credit health, the size of the loan, and the type of loan you seek, a hard inquiry on your credit could lower your score anywhere from one to five points.

These inquiries stay on your credit report for two years, and other lenders who check your credit can see them. It’s important to ask the lender what kind of credit check they plan to pull before you initiate any financial transactions.

Rate Shopping

One to five points add up over time. While you want the best rates and other competitive terms from your lender, the more you rate shop, the harder it hits your credit. Apply to no more than three lenders at a time when you look for a business loan.

Applying for too many loans hits your credit score every time and causes you to qualify for more unfavorable terms each subsequent time. Don’t sabotage your rates by shopping for the best rate. You’ll find yourself qualifying for a terrible rate in the end after applying too many times.

No Special Rules

It’s hard to shop for loans, so the consumer credit agencies implemented rules to minimize the impact of hard inquiries on your credit when you shop for certain types of loans like mortgages, auto loans, and student loans. You can shop around as much as you want within a specified period of time and it only dings your credit report once.

However, there are no such rules when applying for business loans. You get penalized every single time a lender does a hard credit check. Some lenders do a hard check even when pre-qualifying borrowers, so again, it’s important to ask what kind of checks they perform.

You are also entitled to one free credit check every year, so keep tabs on your credit, so you are prepared the next time you need financing. It can help you determine whether it’s a good time to apply, or to hold off until you can improve your score and qualify for better terms.

Business Credit Scores

You may not have known that your business also has a credit score.  Anyone can check this score using the business’s name and address. Because it’s so easy to check, your business isn’t penalized for these inquiries.

It’s smart to shop around to get the best terms, but be careful not to hurt your chances of getting financing based on the number of times you apply. Be wary of lenders performing hard credit checks for pre-approvals. Your credit score shouldn’t suffer needlessly or prevent you from getting funded.

If you’re looking for same day funding, fast business loans, and responsible terms, look no further than Quick Loans Direct. Pre-approval is fast and easy with great rates and loans up to $1,000,000.