In Canada, there are two different types of credit checks based on what you’ve applied for. These are hard and soft credit checks. Each type of credit check has its purpose, and it’s important that you know which type of credit check is being used to check your credit rating.
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Whether you get a soft or hard credit check can make a difference in your credit score. Hard credit scores can reduce your credit score, while soft scores don’t affect your credit score at all. They’re also both used for different reasons. Let’s take a look at what you need to know about both types and which specific loan inquiries use which type of credit check.
What are Hard Credit Checks?
Hard credit checks, also known as hard inquiries, are the most detailed form of credit checks. Typically, these types of credit inquiries are issued by lenders and banks who are looking to issue loans or credit cards. However, it’s essential to know that in order for a company to pull a hard credit check, you do need to authorize it.
Anytime a hard credit pull is done, your credit score can drop anywhere from 5 to 15 points. While this is just a small decrease, the more credit checks you have done, the more your credit score will be affected. This is why the credit reporting agencies recommended that you only have 5 hard credit inquiries per year at max since too many hard inquiries can be a red flag to lenders and reduce your score. However, there are some exceptions to this rule.
The only time that multiple inquiries will not have a negative impact on your credit score is when you’re in the market to purchase a large item. Some examples of this are purchasing a home or a car. In a case like this, your credit score might be run by multiple lenders until you get approval, and it will only count as 1 hard credit inquiry. For this to count, though, it’s recommended that all credit checks be done within two weeks. Applying for multiple credit cards with multiple credit applications, though, will result in multiple inquiries.
If you’ve had a hard inquiry done that you didn’t give approval for, you’re able to dispute hard inquiries. First, you want to contact the company that did the hard inquiry in order to resolve the issue. If that doesn’t work, then you can send a dispute letter to the credit bureau. If you do notice a hard pull that you didn’t authorize, you should deal with it immediately. Hard inquiries affect your credit, and any use of credit by someone other than you can hurt your credit and impact your ability to maintain a healthy credit score.
What do hard Credit Checks Include?
In Canada, hard credit inquiries are basically a full credit report. These types of inquiries include:
- An accurate credit score
- All credit inquiries
- Credit history
- Length of credit history
- Types of credit accounts
- Payment history
Lenders like this type of credit check for new credit applications, especially when it comes to borrowing money, because it gives a detailed description of your financial situation. Factors other than your credit score can often make a difference between an approval or decline, as well as on your credit limit. Those with a lower credit score don’t always have lower credit due to a poor credit history but from a lack of credit history.
What are Soft Credit Checks?
Soft credit checks, also known as soft inquiries, are a much less invasive form of credit pull. The most common type of soft credit check is done by your employer when they’re looking to hire you for a position. It shows an average credit score for you and will make a difference in whether or not you’re approved for the job. That said, not all employers will require a soft pull; it’s most commonly done for finance positions.
Unlike hard credit inquiries, your permission isn’t needed for a soft credit pull. Many credit card companies, or companies you’ve previously had a loan with, will use a soft credit check to see if you’re pre approved for funds. Unlike hard credit checks, soft credit checks don’t get added to your credit report.
What do Soft Credit Checks Show?
While hard credit checks will show you a full credit report, soft credit checks are much simpler and less accurate. Essentially, they will show an estimated credit score that’s accurate to 100 points. Depending on which credit bureau is used, these credit scores will be different.
How Long Inquiries Stay On Your Credit Report
Since hard credit inquiries affect your credit report, they’re the only ones that show up on it. The credit bureau determines how long they stay on it, though.
In Canada, credit inquiries stay on your Equifax credit report for as long as 3 years. However, they can stay on report for as long as 6 years with Transunion. Depending on which province you live in, other factors, such as adverse credit inquiries and bankruptcy, can stay on your credit report for up to 7 years.
Employers And Credit Checks
As we previously mentioned, it’s not uncommon for employers to do soft credit checks on potential employees. These types of credit checks are fast, and while permission isn’t always needed, most employers will inform you or request permission before running the check. Often you get results very quickly as well.
How Long It Takes To Get A Credit Check
No matter the reason that you’re having a credit check done, they’re actually relatively fast. When you get a credit check done, you can have the results in just a few minutes. That said, though, it can take a while for your credit report to be updated.
Updating your Credit Report
When it comes to updating your credit report, it can take anywhere from 1 to 3 months before everything is shown. However, some credit checks and credit lines are only added to one credit report instead of both, so they may not be reflected depending on which credit bureau the lender uses. This is also why your credit scores can vary for each lender.
How To Do A Soft Credit Check And Where
If you’re looking to check your credit score and manage your personal finances, the most common way is with a soft credit check. While you can do a hard credit check, it’s not recommended to do so very often, and your soft check is relatively accurate.
The simplest way to check your credit score online is with an online credit checking service. You can get your soft inquiry directly through Equifax and Transunion or a third-party site. Let’s take a look at some of your options.
Credit Karma
With Credit Karma, you can access your credit report free whenever you like, free credit monitoring for identity theft, and access to financial articles. Your free credit score is updated every seven days, and it’s relatively accurate. However, Credit Karma only shows your Transunion credit score.
The great thing about Credit Karma is that it doesn’t only show you your credit score but also what factors you excel in and what you need to work on. It also offers different ways for you to improve your credit score and can match you with the best credit options for your financial situation.
Just like with any other site, it can be intimidating to sign up with Credit Karma since your personal information is required to get started. Because of this, Credit Karma offers a secure connection with 128-bit encryption, and they don’t share your personal information with affiliated third parties and keep your credit information confidential. They also only ask for the information required to check your credit score; they don’t ask for your credit card number or any payment details.
Borrowell
Borrowell is another website that offers a free credit score; however, the score they show you is from Equifax. They pride themselves on offering the following things:
- Free weekly credit score
- Free credit monitoring
- Free tips and education regarding improving credit scores
- Personalized recommendations of credit products and services
- 256-bit encryption
Even though financial products are offered, you don’t have to take them. You can stick to using the service just to keep track of your own credit reports and your credit score. However, if you’re looking for financial products, Borrowell has over 50 financial product partners and a wide variety of financial products. You can get a loan, mortgage loan, or credit card. You can also get access to banking, insurance, and investing through Borrowell.
Some of the top financial institutions that are currently partnered with Borrowell are:
- American Express
- Capital One
- BMO
- Scotiabank
- EQ Bank
- National Bank
- Sympleloans
- Since
Clear Score
Clear Score is a Canadian company that offers a free TransUnion credit score. In addition to the free credit score, you can also get free tips on credit education and access to different financial products. Like the other free credit score companies, they offer bank-level security with 256-bit encryption.
If you sign up with Clear Score and are looking for financial products, they can offer you free personalized offers that you can’t get anywhere else. You can also see your approval chances before you apply, which can prevent you from applying and getting rejected. Plus, you can get exclusive offers and interest rates that you can’t get anywhere else.
Just like with other credit sites, Clear Score has partnerships with different lenders that offer their customers exclusive offers. These partners include:
- BMO
- Fairstone
- Capital One
- RBC
- TD
- Neo
Most Common Types Of Hard Credit Inquiries
When it comes to hard inquiries, there are certain situations where this type of credit check would be done. These include:
- Auto loans
- Credit cards
- Mortgages
- Personal loans
- Rental agreements
These lenders require this type of credit check because they’re lending you a lot of money and need to ensure that they will get their investment back. Landlords do this type of credit check to ensure that they’re renting to responsible people and are more likely to receive their rent on time every month. It helps them identify any credit risks and make the most informed decisions.
Most Common Types Of Soft Credit Inquiries
Soft credit inquiries are most commonly used for loan preapprovals. However, they can also be used by landlords, for insurance, by debt collectors and utility providers, as well as the government and credit card issuers. The most common time soft credit pulls are done is when you check your own credit score.
Final Thoughts
When you’re applying for something, it can be difficult to determine whether you’re getting a hard credit check. If you’re going to get a hard credit check, the lender will ask for permission to run one since they’re unable to do so without your permission. If they don’t require permission, then they’re only running a soft credit check.
If you’re getting a hard credit check, it will reduce your credit score by 5 to 15 points and affect your credit health. This is why it’s important to limit how many hard inquiries you get per year to 5 or less. The only time a lot of inquiries are recommended in a short period is when you’re getting a mortgage or car loan. In this case, it’s considered responsible for having multiple hard credit checks done by lenders to find the best rate, and you won’t be penalized for it. No matter what type of credit check you’re having done, though, it’s essential to be aware and mindful of how it affects your credit report.
