There are two types of credit checks that Canadians should be aware of: hard and soft. Hard credit checks are typically done by lenders during a credit card application or loan application. They can negatively impact your credit score and remain on your credit report for up to 36 months. A soft credit check happens when you check your own credit report or employers, landlords, and others when they’re considering you for a job, apartment, or another opportunity. They don’t impact your credit score and aren’t visible to others.
The difference between hard credit inquiries and soft credit inquiries
The main difference between hard credit inquiries, also known as hard pulls, and soft credit inquiries, also known as soft pulls, is that hard pulls can negatively impact your credit score whereas soft pulls do not affect your credit score. When you apply for credit in Canada, the lender will usually do a hard credit check. This check is done when a loan provider considers approving you for a loan or new credit card. They will look at your credit file in detail to see if you are a good candidate for the credit product and determine your credit limit. If you have a lot of debt or a history of late payments, it could hurt your chances of getting approved.
A soft credit check is done when a lender is just trying to get an idea of your creditworthiness. They won’t look at your credit history in as much detail, so it won’t have as much of an impact on your credit score.
Hard checks are typically initiated by lenders when you apply for a car loan, personal loan, student loan, or credit card. They are also sometimes initiated by landlords or employers. A soft check is when you, the borrower, check your own credit. Soft checks can also be initiated by businesses that are considering extending you a line of credit, but they may also be initiated by businesses that are simply checking your credit rating as part of a routine background check.
Hard checks can stay on your credit report for up to three years, while soft checks will only stay on your report for a short period of time. Therefore, it’s important to be aware of the type of inquiry that is being conducted before you provide your consent for credit pull.
Things to know before applying for an auto Loan
Before applying for an auto loan, it’s essential to understand your credit history and the credit bureaus that keep track of it. Your creditworthiness and the interest rate you’ll be offered are both based on your credit score and payment history, so it’s important to get a free credit score from a reputable source such as Equifax or TransUnion before applying for a loan. A good credit score will earn you lower interest rates.
It’s also important to choose a financial institution carefully. Some lenders offer pre-approval, which can be a useful way to shop for a loan. But not all lenders report to all credit bureaus, so it’s important to find one that reports to the bureau that your lender uses. By understanding your credit history and taking these steps, you can be sure you’re getting the best possible loan for your needs.