Inquiring minds want to know: can lenders looking into your credit profile hurt your business credit score? Inquiries account for 10% of personal credit scores, but the way they impact business scores is less straightforward. Business credit scores often incorporate more factors than personal scores, and it can be difficult to know whether or not your credit inquiries are affecting your credit scores.
The way inquiries are weighted varies between the major business credit bureaus. Some business credit scores weigh credit inquiries while others ignore them. For example, the Dun & Bradstreet PAYDEX ® score is based solely on the timeframe in which you payback lenders, so inquiries should have no effect on your PAYDEX. Likewise, inquiries have no bearing on Equifax credit scores which focus on factors like a company’s payment index and financial data.
On the other hand, the first inquiry into your business credit can affect your Experian Intelliscore, and the FICO SBSS takes into account both personal and business credit. So inquiries into both your personal and business credit can affect your business credit depending on the report type and credit bureau.
But how much do inquiries impact your scores? Nav’s educational director, Gerri Detweiler, had this to say:
“Inquiries are less of a concern with business credit than personal credit, but they can have an impact, particularly with the FICO SBSS score which evaluates both personal and consumer credit. It’s also important to keep in mind some business financing sources will look at the number of inquiries on your personal credit reports. Too many recent inquiries can make it more difficult to get some types of business financing.”
Inquiries may only have a small impact on business credit, but even a small impact could be the difference between securing financing and needing to look elsewhere. This means you can’t go wrong by learning to manage the impact inquiries have on both your personal and business credit.
How can I manage the impact of inquiries on my business credit?
Understand the difference between “soft” and “hard” credit inquiries
Soft inquiries are inquiries that result from monitoring your own credit or applying for pre-approved credit. These types of inquiries won’t affect your personal or business credit score. Hard inquiries result from applying for a new line of credit, and these types of inquiries will affect your personal scores and can affect some business credit reports and scores.
Know when inquiries happen and how long they stay on your profile
When applying for financing, the lender will likely make an inquiry into your credit score unless you are pre-qualified for financing. Credit inquiries stay on your report for two years, but inquiries only influence your score for one year after they were made. This means inquiries won’t affect your credit scores forever, but you may want to keep track of how many times lenders have looked into your credit during the past year.
Only apply for credit you have a good chance of qualifying for
While you definitely want to try for the best financing possible, you’ll want to check the minimum requirements for approval before you apply. Some credit options can be competitive, and it can be helpful to keep your credit profile and available capital in mind when looking at financing options. If you only apply for credit you have a good chance of getting, you’ll end up with fewer inquiries on your report. You can get matched up with the best finance options for you and your company with Nav.
Build strong business credit in other areas
Inquiries are only one piece of a much larger credit picture. Other areas like payment history, debt ratios and time in business could affect your business credit more than your past score inquiries. No two businesses are the same, so there’s no exact recipe to build your business’s credit, but a good first step for any business is becoming more educated about the ins and outs of business credit.
This article was originally written on July 27, 2018 and updated on October 25, 2019.