There are two types of credit checks or inquiries, a hard credit check and a soft credit check. The way the inquiry is classified depends on who is checking your credit and why. Here, we’ll differentiate between a soft vs hard credit check in Canada to help you understand how each may affect your credit.
Key Points On Soft Vs Hard Credit Checks In Canada
- Hard credit checks require your consent and can negatively impact your credit.
- Soft credit checks do not require your consent and have no impact on your credit score.
- When you check your own credit, it’s considered a soft credit check and has no impact on your credit scores.
What Is A Hard Credit Check?
A hard credit check is done to evaluate the risk of lending or providing a service to someone. For example, when you apply for a loan, the lender can ask to perform a hard credit check when evaluating your application. The lender will typically choose one credit bureau to pull your credit report from and will use it to assess your risk.
Do note, that a lender or any third-party looking to perform a hard credit check on your credit history must get your consent to legally do so. Also, keep in mind that not all lenders check credit when assessing a credit application.
Can A Hard Credit Check Hurt Your Credit Score?
A hard inquiry is recorded on your credit reports, which may cause a small decrease in your credit scores. Every hard inquiry performed can remain on your file for 3 to 6 years, depending on the credit bureau, and is visible to anyone who views your credit report during that time.
Ideally, you want to refrain from applying for too many credit products, especially within a short time frame. The presence of multiple hard credit checks on your report may indicate an inability to service debt and signals to lenders that extending credit to you is risky.
Can Shopping For Loan Offers Hurt Your Credit Score?
What about the scenario where you’re shopping for a home and are visiting multiple lenders to find the right mortgage, which inevitably results in numerous hard credit checks? Credit bureaus allow consumers some leeway by granting them a window of opportunity where multiple hard credit checks are counted as a single inquiry.
The time frame depends on credit bureaus’ scoring model, but usually ranges from 14 to 45 days. However, be aware that this exception doesn’t extend to credit cards – each hard credit check performed on a credit card application counts as one check, no matter how many you apply for.
How Many Points Can A Hard Inquiry Affect My Credit Score?
There’s no specific number of points that a hard inquiry will cut your credit score by. While hard inquiries are considered when your credit score is calculated, there are other factors involved in your credit score, including payment history and credit utilization.
That said, your credit score could dip by around 5 to 10 points, according to FICO. However, again, this can be affected by your current credit history. If you have a positive credit history, the effect of a hard inquiry on your credit score may be even less.
Can You Reduce The Effect Of A Hard Credit Check On Your Credit Score?
You can minimize the adverse effects of a hard credit check by doing the following:
- Only Apply For Credit You Need – Avoid applying for too many credit products, especially within a short time frame. It’s recommended that you only apply for credit when you need it.
- Research Before Applying – Avoid too many hard inquiries by applying with lenders whose minimum requirements you meet. That way, you won’t have to apply with as many lenders. You can also get a loan quote to help you compare offers without having to undergo a credit inquiry.
- Act Fast During The Grace Period – If you’re applying for a mortgage or car loan, multiple inquiries are usually counted as one if you apply within a certain time frame. Be sure to do your loan comparison shopping over that time period.
- Check Your Credit Report – Sometimes your credit report may have some inaccuracies which can affect your credit score. Be sure to check your credit report for errors and fraud, including unknown hard inquiries.
- Use Your Credit Responsibly – You can offset the effects of your hard inquiry by simply maintaining a clean credit report. This involves paying off debt quickly, making regular payments, and keeping your credit utilization ratio low.
What Is A Soft Credit Check?
A soft credit check provides less information than a hard credit check. It’s typically performed by a lender to prequalify you for a credit product, but it doesn’t function as an actual assessment that determines whether you’ll be approved for it.
Soft credit checks are also done by employers and landlords as part of a background check and insurance companies to create an insurance-based credit score, which is used to set your premiums. Furthermore, checking your own credit results in a soft inquiry.
Can A Soft Credit Check Hurt Your Credit Scores?
No, soft credit checks do not hurt your credit score. A soft credit check can only be viewed by you and the person who did the check.
Do Lenders and Other Third-Parties Require Your Permission To Conduct A Soft Inquiry?
Unlike a hard inquiry, soft credit checks can be legally performed without your permission.
What Type of Information Shows Up For A Soft Credit Check vs A Hard Credit Check?
A soft credit check provides a basic overview of your credit report and lists your loans, lines of credit, payment history, and collections accounts. A hard credit check includes a more comprehensive report, enabling lenders to conduct a more detailed examination.
Who Performs Soft Vs Hard Credit Checks In Canada?
Whether the inquiry was a hard or soft one depends on whether you gave the entity performing the inquiry permission. Some of the most common entities that can perform hard and soft credit checks include the following:
- Lenders
- Landlords
- Insurance providers
- Utility providers
- Debt collection agencies
- Employers
- The government
Common Types Of Hard Credit Checks
Hard credit checks usually occur when you apply for any of the following:
- Car loan
- Credit card
- Mortgage
- Personal loan
- Apartment
Common Types Of Soft Credit Checks
Soft credit checks usually occur when:
- You check your credit
- You get “prequalified” for a credit card or other credit products
- You apply for a job and your employer checks your credit
- Your insurance provider checks your credit to determine your premium.
Bottom Line
The key difference between a soft credit check and a hard credit check is that the latter can affect your credit scores. In general, a few hard inquiries on your credit report are negligible, but accumulating too many over a short period can negatively affect it. Credit scores are a critical number that is regularly scrutinized by lenders, so ensure you only seek credit when you really need it and always work to manage your debt responsibly.
