When it comes to managing your credit in Canada, understanding the difference between soft and hard credit inquiries is crucial. Soft inquiries have no impact on your credit rating, while hard inquiries can affect your credit score. In this article, we’ll explore the distinctions between the two, delve into how they impact your credit, and address some frequently asked questions. Plus, we’ll introduce you to the two credit agencies in Canada, TransUnion and Equifax, and how you can access your credit reports for free through Credit Karma and Borrowell.

Soft Credit Check – No Credit Rating Impact

Soft vs. Hard Credit Check: Soft credit checks do not affect your credit rating or score, and they are not considered when you apply for new credit. Contrary to a common misconception, checking your own credit is a soft inquiry. But what else falls under the category of soft checks? TransUnion identifies two categories: “non-credit related inquiries” and “account review inquiries.”

• Non-Credit Related Inquiries: These inquiries are conducted for reasons other than evaluating you for a new credit product. For instance, you might undergo a soft check during a job application or a rental housing application.
• Account Review Inquiries: Companies with whom you already have a borrowing relationship, such as your credit card provider, may perform account review inquiries. These soft checks serve various purposes, including meeting regulatory requirements and assessing your eligibility for new products or services.

Soft credit checks will appear on your credit report when you request your own copy or when a company conducts them. However, regardless of their frequency, soft checks do not impact your credit or score. Both Equifax and TransUnion, the official credit bureaus in Canada, do not penalize you for checking your own credit report. In fact, it’s advisable to do this at least once a year to monitor your financial accounts and detect any issues early.

How to Get Your Free Credit Report & Score

Before we dive into hard credit checks, it’s worth mentioning that you can access your credit reports for free through Credit Karma, which provides TransUnion reports, and Borrowell, which offers Equifax reports. Both of these have apps you can install on your Apple or Android phones and make reviewing your credit easy. While the scores you see on these reports might not be the same as what mortgage brokers use, they provide a general idea of your creditworthiness and the information that credit agencies use to calculate your score.

Hard Credit Check – Will Impact Credit Rating

Hard credit checks can impact your credit rating and score. When a “hard” check occurs, it’s always in the context of evaluating a credit application, whether it’s for a credit card, car loan, mortgage, or any other credit product.

One hard inquiry typically won’t have a significant impact on your credit rating. However, if you apply for multiple unsecured loans or credit cards simultaneously, these multiple hard inquiries can signal to lenders that you might be under financial pressure, thus affecting your rating.

There’s an important exception when it comes to shopping for the best mortgage and car loan rates. When you’re actively seeking these types of loans, all hard credit checks within a specific time frame are counted as a single credit check. Equifax defines this time frame as ranging from 14 to 45 days. To be cautious, try to complete all hard credit checks within a two-week period. Note that this rule doesn’t apply to credit card applications.

Frequently Asked Questions About Soft & Hard Credit Checks

Understanding the nuances of soft and hard credit checks can help you make informed decisions regarding future credit applications. Here are answers to some frequently asked questions:

1. What is a soft inquiry?

• A soft inquiry checks the information in your credit report without affecting your credit rating. Examples include checking your own credit report, allowing potential employers to review your report, and credit card companies prequalifying you for a credit product.

2. Can you fail a soft credit check?

• Yes, it’s possible to fail a soft credit check, but the decision ultimately lies with the company conducting the check. For example, a potential employer may disqualify a candidate based on their credit history, or a landlord may reject a tenant based on their credit report.

3. Does a soft credit check affect a mortgage application?

• Soft credit checks have no impact on a mortgage application. However, when it’s time to renew your mortgage, the lender may perform a soft check to determine whether they’ll offer a renewal.

4. What does a hard credit check show?

• A hard inquiry typically reveals information such as your personal details, credit accounts from the past 6-7 years, payment history, inquiries on your credit report (hard inquiries are listed), and any debts in collections, bankruptcy filings, or outstanding judgments.

5. How many points does a hard inquiry affect a credit score?

• There’s no fixed number of points that a hard inquiry will lower your credit score by. The impact varies depending on factors like the length of your credit history, payment history, and credit utilization.

6. How long do hard inquiries affect a credit score?

• Hard inquiries can stay on your TransUnion credit report for up to 6 years and your Equifax credit report for up to 3 years. These inquiries may affect your credit score. It’s essential to note that you can request the removal of inquiries resulting from criminal activity.

The Bottom Line on a Hard Credit Check vs Soft Credit Check

While soft credit checks are relatively harmless, it’s essential to consider the impact of hard credit checks when planning to apply for new credit. Maintain healthy credit habits, such as timely repayments and responsible borrowing, as these have a more significant influence on your overall creditworthiness. Avoid making numerous credit applications simultaneously, except when shopping for mortgage or car loan rates within a specific time frame. If you have specific credit-related questions or need assistance with your personal finances, consider scheduling a free and confidential appointment with a non-profit credit counseling organization in your area. Your financial well-being is in your hands, and understanding the difference between soft and hard credit inquiries is a step towards making informed financial decisions.