If you own a franchise business, then you know how important credit checks can be. Once you’ve got your business off the ground you might be thinking about how to expand it. No matter what kind of business you have, at some point, you will have to think about the effects of lending out money, hiring employees or making deals with other businesses. Credit checks can be a useful tool to help you make decisions about your customers or prospective employees. They can be used to help prevent fraud, assess affordability and manage risk.
There are two types of credit checks; hard and soft. A hard credit check affects the score of the person being considered. This often takes more time and can be expensive. A soft credit check is a simple and non-invasive way to see someone’s credit history. A hard credit check requires access to more personal information than a soft credit check and can be used by lenders who decide whether or not to lend money based on their own judgement rather than relying on automated systems. Soft credit checks are generally performed by automated systems that rely on statistical analysis instead of individual judgement calls.
These kinds of checks can be done through a credit reporting service. Companies like CRS are offering soft credit check APIs to help you quickly and efficiently perform soft credit checks without long wait times.
Let’s look at three reasons to offer soft credit checks at your business:
1. To prevent fraud
Fraudsters may use stolen or fake IDs to open accounts in someone else’s name and rack up debt without their knowledge, so it’s vital that you protect yourself against this type of activity by checking potential customers’ identities through third-party credit reporting services. This will ensure that the person applying for an account is who they say they are – protecting both you and them from identity theft and fraud. It is a simple step to verify their identity and understand their history with loans and paying off debts.
2. To assess affordability
While most financial institutions only offer small loans to people with good credit scores (typically above 600), some lenders will offer loans even if applicants have a low score or no score at all (like payday lenders). If you’re considering offering loans to low-scoring individuals, make sure that you do thorough research into their finances first so that you know whether they will make payments on time.
A credit reporting service is one of the most important tools you can use to determine if a potential customer is a good candidate. They can help you avoid making bad loans, and they can also help you establish a track record of responsible lending.
3. They paint the whole picture
Soft credit checks give lenders more information about your business’s financial situation than hard inquiries do. Because soft inquiries aren’t reported to the three major credit bureaus, they don’t give lenders as much information about how much debt or income a borrower has available to him or her at any given time. However, with the help of a credit reporting service, you can see how long a business has been operating and whether it’s been operating at a profit or loss over time — both of which are valuable pieces of information when determining whether or not someone is likely to pay back their loan obligations on time.
Soft credit checks provide more complete information. As soft inquiries don’t affect your credit score, you get a broader picture of a potential hire’s background — instead of just the negative aspects that would show up on a hard inquiry report. This makes it easier for employers to find qualified candidates who should be considered for the position.
Soft credit checks are becoming an increasingly popular way for small businesses to run background checks on potential employees, especially since it is a much more cost-effective process than traditional background checks. This makes them a great option for business owners, who would otherwise have to spend large amounts of money to get their hands on hard data. The information provided can let business owners feel confident in their decision-making around hiring or creating partnerships.
If you are not currently using soft credit checks in your business, you should reach out to a credit reporting service like CRS. With a quick setup and easy-to-use system, this can be an effective way to verify information when you are talking with new clients. It can also be a great resource for helping your sales department qualify new accounts. Soft credit checks will help save you time, money and headaches when working hard at your business.
