Soft inquiries, also known as soft pulls, are when someone looks up your personal or business credit score on your credit report with one of the three credit bureaus to see how creditworthy you are. Soft pulls are normally done when you apply for a job, when a company or research firm is interested in marketing to you, or any other number of reasons. They can also be done by a lender when you’re simply exploring your options.
A soft inquiry shares the following information with the person pulling it:
- Business and personal information including a business address, name, and any available contact information
- Summaries of credit accounts including lines of credit, business loans, and credit cards, but not the full details
- A history of payments and whether they’re on time or late
- The credit score range of the company or individual
- Financial issues and concerns like previous bankruptcies, liens, and judgements
Because the person having a soft inquiry done does not have to approve it, there is no impact on their credit score like with a hard inquiry. Hard inquiries mean a person or business is applying for financing, which could be a loan, a credit card, leases on vehicles, etc. and one party needs to verify that the borrower is a low risk to sell to, lend to, contract with, or hire. Soft inquiries are generally for research purposes versus approvals like a preapproved insurance policy, loan, or credit card.
Fun fact: Soft pulls can be done even when you have a credit freeze as there is no impact on the person or business’s credit score. Equifax gives some reasons why here.
Soft inquiries are essentially the same for businesses and consumers, so we’re going to focus on business soft pulls for this guide. These are normal and likely won’t impact you.
In fact, soft inquiries don’t show up publicly, so you’re likely the only one, aside from the credit bureaus and company doing the pull, that knows one was done.
The Companies That Do Soft Pulls
Companies and organizations that do soft pulls include:
- Government agencies and courts that need access to information.
- Investors, owners, and co-owners in a business.
- Financial institutions including online lenders, credit unions, and banks.
- Credit card companies and the issuers.
- Insurance companies.
- Employers and anyone running background checks.
- Business service providers.
- Marketing companies.
- Utility companies.
- Landlords.
- Machinery and vehicle lenders.
- Accountants and financial planners.
- Credit builders.
Anyone that would be interested in getting an estimate of how creditworthy you are will be likely to do a soft pull so they know what their risk level is if they lend to you, sell to you, hire you, or want to market a product or service to you.
The Reasons Soft Pulls Are Done
Government agencies will do soft pulls to verify eligibility, when doing background checks for employment, etc. Even the IRS will do soft pulls when they need your information to collect on back taxes, according to Experian. A court may want to do a soft pull before they decide how to divide assets, what is available to cover a judgement in the case of a company being sued, or before a liquidation in a bankruptcy case.
Sometimes you or a co-owner may be curious about your own credit score and don’t want to pay for a report, or a potential investor is researching companies before they reach out to you. This is especially true for business owners applying for financing like a small business loan and wanting to get better terms. When you have time to increase your personal and business credit score, you can check your report and make changes to increase your creditworthiness in order to get better rates and flexible loan terms.
If your business is working on a growth strategy or doing financial planning, your accountant or financial planner may do a soft pull to see where you’re at and use the data as part of the plan.
Financial institutions, marketing research firms, insurance companies, credit card issuers and others will do a soft pull during the research process before sending pre-approved offers. The opposite may be true for a credit repair company looking for people and businesses that need to do work on building their score up.
Utility companies, landlords, and a company that sells vehicles, equipment, and machinery will do a soft pull before a hard pull when you show interest to see if you’re pre-approved for financing or a lease. They don’t want to risk you defaulting on the expensive purchase, so this is a first step to determining risk.
If you get a notification that soft inquiries are being done, don’t panic. It could be for any number of reasons, and a soft pull has no impact on your credit score, whether it is personal or business. You may even want to run a soft pull to see how you and your business look financially if you’re planning on taking a loan.
National Funding does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors.
