Does Applying For a Loan Affect Your Credit Score?

Does Applying For a Loan Affect Your Credit Score?

Written by Fairstone
Fact-checked by Caitlin Wood
Last Updated July 20, 2020

For this post, we’ve teamed up with our partners at Fairstone

When applying for a loan, or any type of credit, it’s important to understand the impact it may have on both your credit report and credit score. Our partners at Fairstone explain when and how a loan application may show up on your credit report.

First, you need to understand the difference between a soft and hard credit check

When you apply for credit, lenders will do a credit check to access your credit bureau file. There are two types of credit checks: a soft credit check and hard credit check.

A soft credit check does not affect your credit score. Companies usually do a “soft credit pull” or “soft inquiry” if they aren’t intending on lending money at the time of the credit check. For example, a credit card company may do a soft inquiry to offer you a promotion. The soft credit inquiry allows them to narrow down how likely you are to qualify for the offer.

A hard credit check affects your credit score and appears on your credit report, meaning it’s visible to other lenders. Let’s continue with our example above – if you decided to follow through with the credit card offer or promotion, the credit card company would likely do a hard credit check before finalizing and approving your application.

Limiting credit inquiries will protect your credit

Several hard credit checks in a short time-frame may start to significantly reduce your credit score. Why? Lenders perceive this as a credit-seeking activity. Lenders can’t tell whether you’re shopping around for the best rate, or if you intend to follow through with every inquiry. The latter scenario could indicate you’re a riskier borrower – if you take on all the extra credit or loans you applied for, your debt to income ratio will increase.

Why do lenders care about debt to income ratio? Debt to income ratio represents how much debt you have compared to how much money you earn. The higher your debt to income ratio, the more debt you have. Typically, lenders don’t want to lend to someone with a debt to income ratio higher than 36% because they may be likely to default on loan payments. Learn more about debt to income ratio here.

When in doubt, ask what type of credit check is being done

Unfortunately, not all companies are transparent about the type of credit check they’re using, or if they’re doing a credit check at all. Here are some common scenarios when you may want to double-check whether a hard credit check is being performed:

  • Signing up for a new cellphone contract
  • Applying for rental accommodation
  • Signing up for a utility service (including cable)
  • Starting a new job

Shopping around for a loan? Look for a lender that offers loan quotes using a soft credit pull

Some lenders offer a soft credit check so you can determine if their loan is the right solution for you. Luckily, our partners at Fairstone offer an online loan quote that uses a soft credit pull. You can find out how much money you could qualify for and what your loan payments might be. The best part? It only takes a few minutes. If you’re happy with your quote, a Fairstone Lending Specialist will be in touch to discuss loan options. There is no obligation to take out the loan and Fairstone will only do a hard credit check if you’re happy with your quote and interested in proceeding with the full application. Learn more about how Fairstone’s online loan quote works here.

Get your quote at Fairstone.ca

One or two hard credit checks shouldn’t significantly impact your credit score

You may see your credit score dip by a few points, but your credit score should stay relatively stable after one hard credit check (unless it’s paired with multiple other checks in a short time-frame).  

Interested in learning more about the different factors that impact your credit report? Check out Fairstone’s blog – here they break down everything you need to understand about your credit report.


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Fairstone Financial is a leading alternative lender in Canada, they have been helping Canadians since 1923. Their mission is to provide Canadians, with fair to good credit, with an affordable alternative to payday loans.

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