Getting Your Credit Checked in Canada

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Getting Your Credit Checked in Canada

Written by Caitlin Wood

Getting Your Credit Checked in Canada

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Credit Credit Check Credit Pull Credit Report Credit Score

Credit, it’s on everyone’s mind and it’s rather quickly become one of the most talked about and discussed topics in the world of personal finance. Chances are if you’re discussing anything to do with personal finance, the topic of credit will come up. Credit reports, credit checks, and free credit scores, everyone wants to know and rightly so. Credit is the backbone of your financial life. It dictates whether you’ll get approved for your first mortgage (or your second, or third, etc.), what interest rates you’ll be offered, whether you’ll get to drive away in a new car, or rent the apartment of your dreams.

With this new-found curiosity in credit, consumers have become more and more interested in checking their credit and knowing exactly what it means to have their credit checked by an outside organization. And we think this is great, financial literacy is so important. So, if you’re interested in knowing what it means to check your credit or have it checked, we’ve got you covered.

Credit score

What is a Credit Check?

A credit check occurs when an organization or an individual contact a credit reporting agency to gain access to the credit information of a specific consumer. Typically, the main goal of a credit check is to assess a consumer’s creditworthiness during an application process.

There are two different kinds of credit checks in Canada, a hard pull, and a soft pull.

Hard Pull

This is when potential lender or creditor (someone who has a credit related relationship with you) contacts one of both credit reporting agencies to see your credit report. They will then use the information they received to assess your creditworthiness. This type of pull will make negatively impact your credit score by a few points for a short period of time. But, it also requires your permission, so while a hard pull will cause your credit score to drop a few points, you’ll know when it’s going to happen.

Quick tip: Apply for several different credit products (a personal loan, credit card, and a car loan), that require a credit check, all within a short period of time will cause your credit score to drop more than a few points. It’s best to keep your credit application at a minimum as a lower credit score could impact your ability to get approved in the near future.

Soft Pull

A soft pull is when a company or organization, who has a non-credit relationship with you, checks your credit report. A soft pull has no effect on your credit score, it won’t even show up on your credit report at all.

When you request a copy of your own credit report or get your credit score for free from one of the many companies that offer this service, this is considered a soft pull.

Read more: hard vs soft credit checks.

A non-credit relationship includes but is not limited to:

  • For identity verification purposes
  • A potential employer
  • A landlord
  • Insurance companies
  • For fraud detection purposed

Quick tip: Since a soft pull has no effect on your credit score, there is no reason why you shouldn’t check your own credit report and score to stay on top of your financial journey, whatever it may be.

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Who Can Check Your Credit?

The two credit bureaus in Canada (Equifax and TransUnion), create a file for every Canadian who has or is currently using any type of credit product. This report holds all the information pertaining to your credit history, the following people or organizations are legally allowed to check your credit (with your permission):

You

You can check your credit at any point during the year for a fee, but every Canada has the right to request one free credit report a year from both Equifax and TransUnion. If you’re interested in getting a copy of your credit report to verify the information or to simply maintain a healthy financial life, we can’t recommend enough that you take advantage of this.

A Credit Card Company

When you apply for a new credit card you should expect to undergo a credit check so that the credit card provider can assess your creditworthiness. You’ll need to approve the credit check and will be approved or rejected based on what the credit card company thinks of your credit history.

Can your Facebook friends affect your creditworthiness? Find out here.

A Lender

Most lenders will pull your credit before they approve you for a loan. But, keep in mind that there are a variety of alternative lenders who do not check credit as a part of their approval process. So, if you feel as though your credit is going to impede your ability to get approved for the loan you want, consider doing some research on no credit check lenders.

A Bank

When you apply for any type of loan or credit product with a bank (mortgages, second mortgages, lines of credit, personal loans, and business loans, etc.), they will always check your credit. Banks use a variety of methods to assess your creditworthiness, but often your credit report and score are given a lot of weight during the approval process.

A Landlord

Whether you’re moving out on your own for the first time or simply looking for a change in location, your new landlord will require that you submit to a credit check. Your landlord will be looking for a healthy credit history that paints a picture of a financially responsible individual who always makes their payments on time and does not have a serious debt problem.

For a more in-depth look at why landlords pull credit, check out this article.

A Potential Employer

Something that many Canadian consumers do not know is that a potential employer may want to check your credit before they give you a job. While this isn’t common practice at all companies and in all industries, depending on the job you’re interested in, a healthy credit history could be an asset that solidifies you as the best candidate.

Who Can’t Check Your Credit?

Credit checks are meant for those who have, or are interested in entering, some form of financial relationship with you. But, this doesn’t mean that just any company can perform a hard pull of your credit and therefore affect your credit score. Any company or organization that wants to pull your credit must first get your permission. This means that you always have a choice when it comes to who can see your credit. Just keep in mind that if you refuse a credit check, you won’t get approved for the loan, credit product, or apartment that you applied for.

Credit Glossary

Terms
Business Credit Report

A detailed report that is meant to provide potential lenders with information to allow them to determine the business’ creditworthiness before extending credit. There is much more information in a business credit report when compared to an individual’s credit report. Business credit reports are generated and regulated by the credit bureau.

Business Credit Score

A number that represents a business’ creditworthiness based on information within the credit report. The credit bureau calculates and regulates business credit scores.

Consumer Reporting Act

A governing body that oversees credit reporting agencies to ensure that personal information is collected, maintained and reported in a responsible fashion. The Consumer Reporting Act also ensures that individuals have the right to know what information is being reported in relation to them and who the information is being reported to. If any of the reported information is incorrect, you have the right to have it corrected under this act.

Credit

The extension of money, goods or services with trust that the individual will repay the owed amount in the future. In today’s world, trust of repayment is determined through an assessment of creditworthiness using a credit application.

Credit Application

A formal application, required by the majority of lending institutions, that gathers information from the applicant for the assessment of creditworthiness. The form will request information such as personal identification, income and expenses, residency, existing debt, and employment.

Credit Bureau

A governing body that collects credit information about individuals and sells it to other entities that are in the business of extending credit for a fee. Credit bureaus are also referred to as consumer reporting agencies and credit reporting agencies. In Canada, there are two credit bureaus, TransUnion and Equifax.

Credit Card

A financial product that allows cardholders to purchase goods and services using credit. The amount spent in a particular period becomes due at a specific date. If the amount is not paid on that date, interest will come into effect. Credit cards are a physical, plastic card.

Credit Limit

When a creditor extends credit to a consumer it comes with a credit limit, this is the maximum amount the consumer can borrow.

Credit Rating

Credit bureaus collect information about your personal finances and rate you to give potential lenders an easy way to assess your creditworthiness at first glance. There is a rating system in place for consistency and to protect from bias. Credit ratings are different from credit scores but are often used interchangeably. Your credit score actually determines what credit rating you’re given. As an example, if you have a credit score of 850, you’d be given a credit rating of “excellent”.

Credit Repair

The act of improving your credit score by removing inaccurate information from your credit report and working on healthy, responsible financial habits.

Credit Report

A credit report contains information regarding your credit history and includes things such as your credit score, payment history, financial debts, record of debt payment, and any black marks on your credit. Credit reports can be obtained from credit bureaus, such as Equifax and TransUnion.

Credit Score

A three-digit number that is calculated by credit bureaus using a mathematical rating system and information from your credit report. A credit score falls anywhere between 300 and 900, with 900 being the absolute best. Lenders might have minimum credit score requirements for extending credit which is why it’s important to maintain a healthy credit score.

Credit Union/Caisses Populaires

A type of bank that is owned by its members and operates for the benefit of their members. Credit unions are subject to provincial regulation and tend to be small in size and community-oriented. Because of these features, credit unions tend to be a superior way of investing, banking and lending. Credit unions are referred to as Caisses Populaires in Quebec.

Creditworthiness

By assessing the historical information associated with a consumers’ finances, creditworthiness is the amount of trust a lender places on a borrower in relation to the repayment of extended credit. Creditworthiness is assessed using a combination of credit report, credit score, credit rating and application information.

FICO Score

A credit score created by the Fair Isaac Corporation. FICO scores are used by lenders to determine a borrower’s creditworthiness before extending credit. Scores range between 300 to 850.

Inquiry

Whenever an entity, including yourself, requests a copy of your credit report, an inquiry is recorded. A hard inquiry is a request from a lender or any other individual that is assessing your creditworthiness. A soft inquiry is a request by you to view your own credit report. A large number of hard inquiries can indicate financial struggles to a potential lender.

Introductory Rate

A special promotional interest rate offered by credit card issuers for a specific period of time, such as a few months to a year. The goal with these rates is to attract new customers.

Revolving Credit

A type of credit agreement that allows customers to borrow against a pre-approved credit line when making purchases. A credit card is the most popular form of revolving credit. The borrower is responsible for paying the borrowed amount plus interest each payment period. Revolving credit is also referred to as open-ended credit or charge account.


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