When someone pulls your credit information, do you know the difference between a “hard” and “soft” check?
It’s an important distinction to understand because one negatively affects your credit score and the other doesn’t. Your credit report contains information about you and your credit history. It contains information about every loan you've taken out in the last six years — whether you regularly pay on time, how much you owe, what your credit limit is on each account and a list of authorized credit grantors who have accessed your file. Because it can have a powerful impact on your finances, it’s important to keep it up to date.
Credit checks are typically done when you want to rent a new apartment, sign up for a credit card and even applying for a new job.
Soft credit checks
Soft inquiries often happen without you even knowing about them. Think of it as a glance at your credit as opposed to an in-depth look. They are not used for the purpose of issuing new credit to you. You can also do a soft check on your own credit report.
When mortgage brokers or lenders do a pre-approval or you receive a credit card offer in the mail, it’s likely that a soft inquiry was done to see if you would even qualify. Employers may do a soft credit check to see if you are a responsible person.
Essentially, with a couple of exceptions, you are the only one who can even see soft inquiries on your credit report at all. The two exceptions are that insurance companies can see other insurance company inquiries, and lenders can see if you’ve had inquiries from debt settlement companies. The bottom line is soft checks are not a factor in your credit score at all.
Since checking your own credit history is a soft inquiry, never be afraid to check your credit over concerns that it may hurt your score. You can get your free credit report directly from the national credit-reporting agencies or on demand from some personal finance websites.
In Canada, the two national agencies are Equifax Canada and TransUnion Canada. You can request a free copy of your credit file by mail with proof of identification. The agencies also offer an online service they offer for a price whereby you can access your report online, get alerts, credit analysis and some protection on identity theft.
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Hard credit check
A hard credit check is an animal of a different stripe. It is used by someone who is actually checking your creditworthiness for the purpose of issuing you some form of credit, and it does impact your credit score.
Having multiple hard inquiries in a short period of time could signal you’re attempting to open multiple accounts. Why is that an issue? Because it could mean you’re trying to use credit to stay afloat.
However, Equifax Canada also notes multiple inquiries for the same type of loan, such as a mortgage, made within a certain period of time generally count as one inquiry.
Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit reports for up to 36 months. Depending on your unique credit history, they could indicate different things to different lenders.
Now that you’re armed with more information about hard and soft credit checks, it may be an idea to do some further research and find out the status of your own credit report.