As a busy professional, the last thing you should worry about when applying for a loan is the negative impact it’s going to have on your credit score. Whether you’re looking to consolidate debt, take advantage of an opportunity, or improve your cash flow, the only thing you should be focused on is how quickly you can get the funding you need.
But if the lender you’re working with doesn’t operate with this same understanding, your credit score could be at stake.
When applying for a loan, you will undergo either a hard credit inquiry or a soft credit inquiry. Asking your lender which type of pull you can expect before entering into the application process can make all the difference for your credit score and your overall financial health. Here’s how:
Hard credit inquiries
“Hard pulls,” as they are commonly known, provide a full, in-depth report of your credit history and credit score, including previous requests for credit.
What it means for you
Most banks and lenders will execute a hard inquiry when checking your credit as part of a loan application. When a hard credit inquiry is executed, your credit score may be negatively impacted. Hard pulls stay on your credit report for up to two years and are often used by financial institutions as place markers of your money management.
Soft credit inquiries
In contrast, soft credit inquiries or “soft pulls” do not impact your credit score, and lenders are typically unable to see soft credit inquiries on your credit report.
What it means for you
A soft pull provides the inquirer with similar information you might see when checking your own credit—number of lines of credit, number of loans, payment and collection history, etc. This method of credit inquiry leaves no imprint on the credit history of an applicant and provides a level of discretion between the institution pulling the report and the person whose credit is being reviewed.
Why it matters
Maintaining a strong credit score is extremely important for ensuring a healthy financial profile. Knowing how your credit is being pulled for any situation, including when applying for a loan, is a critical part of protecting the score you’ve worked hard to build and protect. That’s why before taking out a loan, you should always ask your lender, “What kind of credit pull should I expect from your process?” If they can’t give you a straight answer, or don’t give you the answer you want, you may want to consider a different financial partner.
At BHG Financial, we believe that applying for a loan to improve your financial situation is no reason for your credit score to take a hit. That’s why we only execute soft credit pulls during the loan application process (with a hard pull only done at the funding stage for consumer loans).
When you consider us for financing, you can estimate your payment and/or apply for funding with peace of mind as it relates to your credit score.
