by Kevin Sun
Wondering what’s the difference between a soft vs hard credit check in Canada? Put simply, a hard check affects your credit rating, but a soft check doesn’t. Also known as credit inquiries or credit pulls, these are a way for companies to see the info on your credit report. Of course, you can also check your own report. Read on to learn more about what makes a soft credit check and what makes a hard one.
Soft Credit Check – No Credit Rating Impact
Soft credit checks don’t affect your credit rating or score and are not used when applying for new credit. If you were ever told that checking your own credit will lower your score, then you might be relieved to know that this is wrong – checking your own report is a soft inquiry. But what else counts as a soft check? There are 2 categories that TransUnion describes as “non-credit related inquiries” and “account review inquiries.” Like their names suggest, non-credit related inquiries are done for reasons other than to evaluate you for a new credit product. A common example is getting a soft check as a step in an employment or rental housing application. Account review inquiries are done by companies that you already have a borrowing relationship with, such as the company for a credit card you currently use. Reasons for this type of soft hit include meeting regulatory requirements and assessing you for a new product or service offer.
Soft credit checks will show up on your credit report when you request your own copy and for the company who did them. However, no matter how many of them there are, your credit and score won’t be affected at all. There are no consequences from the official credit bureaus in Canada, Equifax and TransUnion, for checking your own credit report. Doing it at least once a year will in fact help you stay on top of your financial accounts and catch any problems earlier!
Hard Credit Check – Will Impact Credit Rating
Hard credit checks can have an impact on your credit rating and score. The hard credit check vs soft credit check distinction lies in the inquiry’s purpose. For “hard” checks, the purpose is always to evaluate a credit application you started, whether that’s for a credit card, car loan, mortgage, or other credit product. Just one inquiry usually won’t have a big impact on your credit rating. However, if you apply for a bunch of new unsecured loans or credit cards at once, then the multiple hard inquiries will signal to lenders that you might be under financial pressure, thus having a greater impact on your rating.
An important exception to the negative impact of multiple hard credit checks is when you’re shopping around for the best mortgage and car loan rates. Because this suggests that you’re doing your due diligence, all the hard credit checks for a mortgage or car loan are counted as just one credit check – so long as they are all done within a specific time frame. This time frame is described by Equifax as ranging from 14 - 45 days. To stay on the safe side, try to have all hard credit checks done within 2 weeks of each other. Also remember that this does not apply to credit card applications.
Frequently Asked Questions About Soft & Hard Credit Checks
Knowing the difference between a soft credit check vs hard credit check will help you make decisions that could affect future credit applications. However, you might also have specific points of confusion about either or both types of credit inquiries. Here are quick answers to 6 frequently asked questions:
What is a soft inquiry?
A. Soft credit inquiries check the info in your credit report without affecting your credit rating. Examples of when a soft inquiry happens are when you check your credit report yourself, when you allow a potential employer to check your report, and when a credit card company you already deal with tries to prequalify you for a credit product.
Can you fail a soft credit check?
A. Yes, you can fail a soft credit check. But ultimately, it’s up to the company doing the soft credit check to decide if the info they receive passes or fails their requirements. For example, a potential employer might decide that a candidate’s credit history disqualifies them from the job, or a landlord might reject a potential tenant based on their credit report.
Does a soft credit check affect a mortgage application?
A. Because soft credit checks do not affect your credit rating, they will have no effect on a mortgage application. However, a mortgage application will require a hard credit check, which does affect your rating.
The only time a soft check will affect your mortgage loan is when it comes to renewal time. Then the lender will do a soft check to see if they will offer to renew your mortgage with them or not.
What does a hard credit check show?
A. The info that’s normally on a credit report includes: your name, address(es), SIN, date of birth, employer(s), all of your credit accounts from the past 6-7 years, whether you pay on time or not, who has inquired on your credit report (hard inquiries are all listed), and whether you have any debts in collections, have filed bankruptcy, or have any outstanding judgements against you. If you have provided a consumer statement, that will be there too. Depending on which province you live in, almost everything good or bad will drop off your credit report 6 – 7 years after it was reported.
How many points does a hard inquiry affect a credit score?
A. There’s no set number of points that a hard inquiry will lower your credit score by. That’s because your credit score is based on info in your credit report. Hard inquiries only make up about 10% of your score, but can have a higher or lower impact depending on other factors like the length of your credit history, if you make payments on time and in full or not, and how much of your available credit you use on a regular basis.
How long do hard inquiries affect credit score?
A. Hard inquires can stay on your TransUnion credit report for up to 6 years and your Equifax credit report for up to 3 years. All hard inquiries on your report may affect your credit score. Applying for the removal of credit inquiries only works if the inquiries came as a result of criminal activity. If they were performed without your consent, contact the company listed and ask them to remove the inquiry.
The Bottom Line on a Hard Credit Check vs Soft Credit Check
Soft credit checks are fairly harmless. However, in the grand scheme of things, even hard credit checks are not worth obsessing over. Far more important is maintaining healthy credit habits like repaying what you owe on time and not borrowing more than you can afford. The impact of hard credit checks is worth thinking about when you’re planning to apply for new credit. Just avoid making too many credit applications at once unless you’re shopping for mortgage or car loan rates. If you have more specific questions about credit or need help with your personal finances, consider booking a free and confidential appointment with a non-profit credit counselling organization in your area.