What is a Credit Inquiry?

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What is a Credit Inquiry?

Written by Bryan Daly
Fact-checked by Caitlin Wood

What is a Credit Inquiry?

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Credit History Credit Report Credit Score

Once you start using credit products, your providers will send your payment and account information to Canada’s major credit bureaus; Equifax and TransUnion. Soon after, each bureau will create a slightly different version of your credit report and credit score, both of which can be used to summarize your behaviours as a credit user. 

What is a Credit Inquiry?

All that said, there are a couple of other credit-related terms that you might not know, such as “credit inquiry”. Want to know what a credit inquiry is and how it can affect your credit report and credit score? Keep reading to find out.

A credit inquiry is when you or an organization requests access to the information included in your credit report. You can request a copy of your own credit report at any time (you have access to one free copy a year, you’ll have to pay a fee for any additional copies) to help keep track of your credit history and help manage any financial issues you may be experiencing (is it better to have no credit history or bad credit history? Click here). An organization can request a copy of your credit report to help them make decisions about you and your creditworthiness.

Types of Credit Inquiries

In Canada, there are several entities that can check your credit. When that happens, two types of credit inquiries could appear on your credit report:

  • Hard Inquiry – If you apply for some kind of new credit product and a lender checks your credit report, a hard inquiry will appear on your credit history for a predetermined period. Since these transactions correspond to official credit applications, each hard inquiry performed can decrease your credit score slightly.  
  • Soft Inquiry – Non-credit entities, like landlords, employers, and certain businesses will occasionally examine your credit report as well. You can also check your own credit. All these lead to soft inquiries, which will be visible to you when you check your credit report, but not lenders who check. Soft inquiries do not affect your credit score.

Learn more about hard and soft credit inquiries.

Who Can Pull my Credit Report?

There are both federal and provincial laws that govern who can legally request access to your credit report. This means that only you or organizations that you have a relationship with can see the information included in your credit report. In order to gain access to your credit report, an organization must be in the process of:

  • Approving you for credit or a loan (banks, credit card companies, lenders)
  • Trying to collect a debt (banks, lender, creditors)
  • Hiring you (any employer)
  • Renting an apartment or house to you (a landlord or building manager)
  • Proving you with insurance (insurance providers)

Learn how to read your credit report here.  

How do Credit Inquiries Affect Your Credit?

Be careful when applying for any product, service or job position that could appear on your credit report. This is a particularly important rule when it comes to hard credit inquiries, which have a direct impact on the overall health of your credit. 

In fact, new credit inquiries are one of the five top factors that can influence your three-digit credit score, which normally ranges from 300 to 900 (although there may be multiple versions of your score held by both Equifax and TransUnion).

What Percentage of Your Credit Score do Credit Inquiries Make up?

Basically, the number of inquiries you have on your credit report goes into the calculation of your credit score. When factored in, new credit inquiries make up about 10% of your total score. They also stay on your credit report for several years. Remember, only hard inquiries affect your credit score in a negative way.

Here are the other factors that go into the calculation of your credit score:

  • Payment History = 35%
  • Current Debts = 30%
  • Credit Account Length = 15%
  • Types of Accounts = 10% 

Found an error on your credit report? Learn how to dispute an error on your credit report

Credit-Related Inquiries

A credit-related inquiry is typically performed by an organization looking to extend credit to you or to provide you with a loan. These types of inquiries are called hard inquiries, sometimes referred to as hard pulls. This means that every time there is a hard pull of your credit report your credit score will go down a few points. Too many hard inquiries all within a short amount of time could negatively affect your credit score. Every time there is a credit-related inquiry made it will appear on your credit report and stay there for 3 to 6 years, depending on the credit bureau.

Non-Credit Related Inquiries

A non-credit related inquiry is performed by you when you request a copy of your credit report, and by other organizations that are looking to enter into a non-credit relationship with you. This includes but is not limited to:

  • An organization that needs to verify your identity
  • A potential employer
  • A landlord
  • An insurance provider
  • For fraud detection purposed

A non-credit related inquiry is also referred to as a soft inquiry or soft pull. This is because your credit score will not be affected. Typically you’ll need to give your consent before an organization can perform a soft pull of your credit report unless it’s authorized by law.

How Long Does Credit Information Stay on Your Credit Report? Read this.

Account Review Inquiries

An account review inquiry can be performed by organizations that already have an established relationship with you. This type of inquiry can help an organization:

  • With account renewals
  • To change pre-existing limits
  • Pre-approve you for another service

Account review inquiries do not affect your credit score and will only be visible to you on your credit report, no other organization who pulls your credit report will see these inquiries.

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How Often Should You Check Your Credit Report?

Since all Canadians can request one free credit report a year from each credit reporting bureaus, once a year is a good place to start (learn how to get your credit report for free here). For the average consumer, reviewing your credit report once a year should help you keep track of your accounts and make sure that there aren’t any issues. For anyone looking to make serious financial changes or who are currently experiencing financial problems, it may be in your best interest to check your credit report every 6 months.

Steps You Can Take to Manage Your Hard Inquiries 

Although a hard inquiry can have a negative impact on your credit report, the final effect is relatively small, at least until you apply for new credit multiple times. There are a few ways to better manage your hard credit inquiries, for example:

  • Apply Within a Short Timeframe – It’s not always a great idea to apply for too much new credit. However, if you really need to, it’s best if you don’t space out your applications too much. Actually, if you apply multiple times within a short window, a credit bureau may count them as a single hard inquiry.
  • Limit How Many Credit Products You Apply For – If you want to reduce the damage that hard inquiries can do to your credit score, one of the simplest solutions is to limit the amount of times you apply for credit in the first place. Do lots of research beforehand and only apply for credit products that you truly need.
  • Check Your Credit Report Regularly – It’s possible that a new credit inquiry was placed on your credit report by accident or as a result of identity fraud. So, it’s smart to check both versions of your report for mistakes or discrepancies at least once a year. If you find one, file a dispute claim with the credit bureau right away.

What if I Don’t Recognize a Credit Inquiry on my Report?

It’s never a bad idea to check your credit report, which you can do for free once per year with either credit bureau (other copies may cost a fee). Be sure to look the whole document over carefully, as you may end up spotting a suspicious credit inquiry for a product that you don’t remember applying for. 

Unfortunately, this could be a sign that you’ve been scammed or had your identity stolen. Not only could this result in hard inquiries that you didn’t deserve, it means your finances may be compromised. Here’s a list of the preventative measures you should take if you don’t recognize a credit inquiry on your report:

Get in Touch With Your Lender

Your credit report should contain information about the lender that made the inquiry. Reach out to them immediately so that they can verify the account or product. If the lender cannot prove its legitimacy, ask them to mail a letter to the credit bureau(s) on your behalf. If the dispute is viable, the bureau will remove the record from your report.

Learn more about why you should monitor your credit.

Send a Letter to The Credit Bureau(s)             

If you discover a fraudulent credit inquiry or other kind of suspicious activity on your credit report, you can always send your own letter to Equifax and/or TransUnion. Once the bureau determines that the dispute is legitimate, they will remove the record from your report and you should gradually see your credit improve.

Check out these credit monitoring services in Canada.

Get a Fraud Alert Added to Your Credit Report

Fraud alerts are a free service offered by both credit bureaus. While they don’t protect you against scamming or fraud, lenders can see them when checking your credit report. Essentially, a fraud alert tells them that your finances may be compromised, so they should go the extra mile to confirm your identity. Plus, it won’t affect your credit score. 

Ask the Bureau(s) to Put a Credit Freeze on Your Report

Credit freezes are another free service that doesn’t affect your credit score. Like a fraud alert, freezing your credit doesn’t totally fix the damage from fraud. However, it prevents unrecognized parties from opening credit accounts using your identity. After you’ve had a chance to recover financially, ask for the freeze to be temporarily lifted or removed.

Check out who can freeze your bank account in Canada.

Credit Inquiries FAQs

How long does a credit inquiry stay on your credit report?

As mentioned earlier, a hard inquiry can remain listed on your credit report for a little over two years with TransUnion and up to three years with Equifax (following the date it was made). From that point, until the record is removed from your credit history, the hard inquiry can be seen by any prospective lender that checks your report.   On the other hand, most soft inquiries stay on your credit report for around 12 – 24 months, again depending on what type it is and which bureau you check with. Potential lenders cannot view your soft inquiries when you apply for new credit. Only you can see them when looking at your own report.

Why do potential lenders perform credit inquiries?

There are a few different reasons a prospective creditor  will examine your credit report and perform a hard inquiry. Generally speaking, they do this to get a basic idea of your creditworthiness, meaning the chance that you’ll be able to handle your credit product and future debt payments responsibly.  Luckily, lenders aren’t usually too concerned by the amount of hard inquiries on your credit report. Unless, of course, you have a lot of them and are constantly being denied. For the most part, they’re more interested in your payment history and income, so that they can confirm your ability to cover the debt within the specified period.

Worried About Credit Inquiries Affecting Your Credit Score?

If you’re having trouble managing your hard credit inquiries or you’re trying to reverse the negative impact caused by identity fraud, stay calm and follow the preventive measures above. While it might take a bit of time to fix the situation completely, it’s always possible to bounce back from credit score damage if you have the right help!  

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 900.

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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