If you’re applying for financing, an apartment unit, a credit card, or trying to receive a loan, the creditor you’re applying for will perform a credit inquiry to verify your creditworthiness and determine your eligibility for the loans.
Depending on the situation, the creditor will either perform a soft or a hard credit check.
A soft credit check has no effect on your credit report and just shows the creditor your credit rating and history. A hard credit check directly impacts your credit report (and score), as it will remain on your credit report for two years.
Below, I’ll compare a soft vs. hard credit check in Canada, explain when each is used, how inquiries can affect your score, and what you can do to get inquiries removed from your report.
A soft credit check is a type of credit inquiry that does not appear on your credit report. They’re often used by lenders, credit card companies, and buy now, pay later programs to pre-qualify individuals for various loans, lines of credit, or financial products.
After performing a soft credit check, the creditor will be able to see the following information about your credit account:
- Your full name
- Your current credit score
- Your payment history
- Your total debt
- Accounts in collections
- Recent inquiries
If you’ve ever received an offer for a loan or credit card in the mail, then it’s likely because the issuer of the invitation performed a soft credit check, which indicated that you might be eligible for a certain financial product.
- Note – just because you’re pre-qualified for a loan or credit card isn’t a guarantee that you’ll be approved.
Soft credit checks are more favourable than hard credit checks, as they have no effect on your credit report. A hard inquiry will stay on your credit report for two years, which could affect your score and your approval for loans or credit.
Soft credit checks are used in a number of different situations. Generally speaking, soft credit checks aren’t used to make a final decision. Rather, they’re used to provide creditors with a kind of baseline, similar to the way that the armed forces require applicants to complete basic physical training benchmarks.
Soft credit checks aren’t just used by potential creditors and lenders, though. They may also be used to determine your eligibility for a certain apartment unit. Based on this information, the apartment manager will determine how much you’ll need to put down as an initial security deposit.
I’ve also heard of certain employers performing a soft credit check on applicants to determine whether or not they’re eligible for a certain position. Job-related credit checks are typically only performed for higher-paying positions that come with significant responsibilities.
If you’ve recently undergone a soft credit pull, then you may be wondering how it will affect your score. Thankfully, a soft credit check will NOT impact your credit score. Since the credit inquiry is not reported on your credit report, the credit bureaus will not have a record of the inquiry and cannot use it against your score.
A hard credit check displays the same information to creditors as a soft credit check. The main difference is that a hard credit check is reported on your credit report. Once the inquiry is marked on your credit report, it will likely affect your credit score, causing it to decrease slightly.
Hard credit inquiries are usually the final step of a loan application. After a hard inquiry, you’ll either be approved or denied based on the results.
Hard credit checks are performed to determine your eligibility for a loan or financial product. Some of the most common instances where you’ll receive a hard credit inquiry include:
- Applying for a new credit card
- Applying for an unsecured personal loan
- Applying for a mortgage
- Applying for an auto loan
- Applying for a credit line increase
- Applying for a small business loan
At this point, you might wonder, “Why would a creditor perform a hard credit check when a soft credit check displays the same information?” To most, it seems a bit unfair that one credit pull can decrease your score while the other cannot.
The reason is that it benefits lenders to see how recently you’ve applied for credit.
Remember – credit scores were never really designed for consumers. They were designed to help lenders figure out who they should and shouldn’t lend money to.
Think about it from a personal perspective…
Let’s say that a complete stranger came up to you, asking you to borrow $200 in exchange for an extra $20 worth of interest.
Now, you don’t know this person at all, so there’s no way to judge whether they’ll actually pay you back or run off with your money. Wouldn’t it be nice to know how many other people they asked for money before they asked you for the loan?
You might take them more seriously if they were the type of person who rarely asked others for money. However, if they had a history of asking multiple people for loans over the past few months, then you may not be so quick to trust them.
Essentially, creditors all work together and utilize hard inquiries as a type of “warning” to other creditors that the person has recently applied for credit.
It’s a bit of an oversimplified example, but hopefully, you get the point.
This is usually the first question on most credit applicants’ minds. Unfortunately, there’s no cut-and-dry answer.
If it’s your first hard credit check in two or more years, then the inquiry will likely only have a minor effect on your score. However, if it’s one of multiple hard credit inquiries in a span of fewer than two years, then it will likely have a higher impact on your score.
This is because 10% of your FICO credit score is determined based on the amount of new credit that you’ve applied for.
This is the reasoning behind no-credit-check loans. These short-term loans often come with a high-interest rate in exchange for not performing a hard credit inquiry, which could further damage the applicant’s credit score.
A hard credit inquiry will remain on your credit report for two years from the date that it was initially performed. After this period, the hard credit check will drop off of your report as if it were never there.
To prevent your score from decreasing unnecessarily, I recommend that consumers try to limit the amount of credit that they apply for during a two-year period.
If your report shows a long list of recent inquiries, then it might be a good idea to wait till a few of the inquiries fall off before undergoing another hard credit check.
Unfortunately, you typically cannot remove a hard credit check from your credit report. Once the inquiry is performed, it will remain on your credit report for two years.
The one exception to this rule is if the inquiry was fraudulent, mistaken, or the result of identity theft. In these cases, you can file a dispute with the credit bureaus (Equifax and TransUnion) to try to get the hard credit check removed from your credit report.
Whenever a hard credit check is performed, the credit pull will be reported to either Equifax or TransUnion. More often than not, both credit bureaus will receive a notification, as creditors often pull your credit report from both.
If you plan on applying for a new line of credit, then it’s a good idea to check how many hard credit checks are currently listed on your report. To see this, you’ll need to request your free credit report from both Equifax and TransUnion.
This should list all of the recent hard credit inquiries on your profile, which institutions performed them, and the date that each will be removed from your credit report.
Generally speaking, your credit score should improve after hard inquiries are dropped from your credit report, as long as you don’t continue to rack up more hard inquiries.
How many points your score will increase depends on a variety of other credit factors, though, so it’s impossible to say for certain.
If you’ve recently checked your credit report and noticed a hard inquiry that you didn’t approve, it could be the result of fraud or identity theft.
This often occurs when somebody steals your identity and then uses your credit profile to apply for a loan or line of credit. The thief runs off with the money, and you’re left with a huge mess to handle.
If you believe that a hard credit inquiry was performed without your approval, you can dispute it with the credit bureaus. Here’s how.
First, you want to double-check that the credit check was, in fact, fraudulent. It can be easy to forget things over the course of two years. Contact the institution that pulled your credit, reference the date, and ask for some information to verify that it wasn’t you who approved the credit check.
Once you’ve verified that the credit check was fraudulent, you’ll need to contact both Equifax and TransUnion to file a dispute for the credit inquiry. This can typically be initiated through your online account with each credit bureau.
At this point, you’ll typically be asked to provide a defence for your case and proof that the credit check was fraudulent.
If you suspect that you’re the victim of identity theft, you should also contact law enforcement and keep them apprised of the situation. They may be able to help identify the crook and help to restore your identity.
At this point, it may also be a good idea to lock your credit profile, to prevent any further credit inquiries or damage to your credit score.
After completing these steps, you’ll just have to sit and wait. It could take weeks or even months to resolve the dispute. However, it’s worth it to get fraudulent credit checks removed from your credit report.
Hard credit checks can negatively impact your credit score for a period of up to two years, after which they’ll be dropped from your credit report. With this in mind, it’s a good idea to limit the amount of new credit you apply for within a given two-year period.
Looking to make some improvements to your credit score? Keep on reading to see my guide to increasing your credit score by 100 points next!