A credit inquiry is when a lender, creditor, or other individual requests to view your credit report. There are two different types of credit inquiries: Hard and Soft. Hard inquiries can impact your credit score, while soft inquiries do not impact your credit score. Here’s a more detailed comparison:
Below, we’ll take a closer look at the difference between soft and hard credit inquiries to help you understand how they affect your credit rating, and how to use them to your advantage when shopping for credit cards, loans, and mortgages.
A soft credit inquiry, sometimes referred to as a soft pull or soft check, typically happens when someone checks your credit report to gauge if you’ll be successful before applying for credit. A soft check could also be when you check your free credit score using Borrowell. This doesn’t affect your credit score, no matter how many times you check your credit score.
Soft credit inquiries, when done by a financial institution or other company, only allow limited access to your credit report. They are meant to provide a high-level overview of your credit health.
Common examples of soft credit checks include:
Whether you’re about to apply for a loan or are looking to improve your credit health, checking your credit score on a regular basis can help you make informed financial decisions. With Borrowell, you can get your credit score for free and receive weekly updates.
Soft credit checks do not appear when lenders look at your report; they are only displayed to you. These checks don’t impact your credit score, so there’s no harm in performing frequent soft credit pulls and regularly checking your credit score to stay on top of your overall financial health. You can check your credit score and credit report for free with Borrowell without impacting your credit score.
A hard credit inquiry, sometimes referred to as a hard pull or hard check, happens when a potential lender checks your credit report when making their lending decision. Lenders and other companies require your permission before making a hard credit inquiry.
Hard credit inquiries provide lenders full access to your entire credit history. When a lender performs a hard inquiry, it will slightly lower your credit score. Hard inquiries are listed on your credit report and, in Canada, will stay there for three years. Other lenders and companies can see how many hard inquiries are listed on your credit report when they pull your report.
Common examples of when hard credit checks occur include:
Because these credit inquiries affect your score, it’s best to keep them to a minimum. Only authorize a few within a small time frame. This is especially true if you’re tackling a large financial goal, such as applying for a mortgage.
While hard credit checks can cause your credit score to dip, there are a few things you can do to limit the impact and maintain a healthy credit score.
Consider spreading out applications that trigger hard credit inquiries to one every few months. This can allow your credit score time to recover from the impact of the inquiry.
Lenders who view your credit report may be concerned if there are too many hard credit inquiries listed on your credit report. It may look like you’re urgently applying for credit, or that you’re trying to live beyond your means by taking out too many credit products. Lenders might think that you’re stretching yourself too thin and that you might have trouble paying them back.
When you’re attempting to build credit, you may find it tempting to open new accounts in quick succession, but doing so can actually be detrimental to your credit score in the short term. If you have a short credit history, multiple hard inquiries in a short time period are more damaging to your score than if you have an established history.
Your credit report gives you full access to review anyone that makes a hard pull. If you notice an inquiry you don’t recognize, contact the credit bureau to dispute the record and have it removed. Updating the information they have on file can help you improve your credit score.
You can limit the impact of a hard credit check in a few different ways.
Firstly, it’s wise to spread out loan applications to give your score time to recover. Instead of applying for a series of loans in quick succession, be strategic about it. Carefully consider whether you need to borrow money and how applying for a loan will affect your overall financial health.
If you’re hoping to secure a large loan such as a mortgage or a line of credit in the near future, you may want to forgo applying for smaller loans for the time being. This will minimize the number of hard inquiries on your credit report, and your credit report will look more favourable to lenders.
While applying for a series of loans in quick succession is typically a red flag, there is an exception if you are applying for the same type of loan. Credit bureaus will combine hard pulls made within a grace period for certain loan inquiries and count them as a single hard check.
For instance, if you apply for three different car loans, it signals to lenders that you’re shopping around for the best deal. These inquiries will all be counted as one inquiry, rather than three separate ones. However, if you apply for a car loan, a mortgage, and a new credit card all at once, each inquiry will be counted separately.
The grace period to group these types of hard inquiries is usually 14 - 45 days.
So, if you’re shopping for a new vehicle or a mortgage, it’s safe to authorize multiple hard inquiries with different lenders in order to shop around for the best loan available. Don’t try to buy a new car and a new house all at the same time.
It’s wise to make a habit of reviewing your credit report regularly. This way, you are able to catch errors and dispute them in a timely manner. If you happen to spot a credit inquiry you didn’t authorize, you can contact your credit bureau and request that it be removed from your report.
Use Borrowell to view your credit score and credit report for free. Doing so won’t affect your credit score and it will enable you to quickly spot any changes or discrepancies you may need to dispute. Regularly review your credit report and ensure you don’t notice any odd entries, errors, or information on your report.
Certain information remains on your credit report for a specific amount of time. In Canada, hard inquiries will stay on your credit report for three years. However, they are weighted less heavily as time goes on, until they automatically fall off from your report. This is why it’s wise to space out your applications for different types of loans. You don’t have to wait a full three years between credit applications, but the longer you wait, the more beneficial it is to your credit score.
Soft credit inquiries appear on your credit report but they are only visible to you. This is only fair, since soft pulls are either performed by you to check your own score or by lenders to prequalify you for a product that you haven’t even applied for.
It’s essential that you check your credit report regularly so you can spot any discrepancies as soon as possible. If you wait too long to review your credit report you may have a hard time remembering which inquiries you did or didn’t authorize.
With Borrowell, it’s free to monitor your credit report, so there’s no reason not to, especially if it can help you remove needless derogatory marks against your score.
If you happen to spot an inquiry on your credit report that you didn’t authorize, you can dispute it.
To do so, you will need to contact each credit bureau separately (Equifax and TransUnion) and follow their protocols for reporting errors on your report. Typically, you can complete this process online or through mail, and there is no charge to do this.
The item in question can only be removed from your credit report if it is deemed inaccurate. Items that are accurate will not be removed, even if you dispute them.
In most cases, you will be asked to provide documentation to support your claim. For instance, if you have been a victim of identity theft, providing proof of this will add weight to your dispute.
Now that you know the difference between soft and hard credit inquiries, don’t stress out about avoiding all hard inquiries. Keeping hard inquiries in check can contribute to your financial well-being and improve the chances of qualifying for a loan with better rates when you need it.
Checking your credit report regularly will help you see how your financial activities have affected your score, for better or for worse, and enable you to spot any inaccuracies in a timely manner.
Get your free credit score and free credit report from Borrowell! It’s a soft inquiry that won’t affect your credit score.
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