Soft vs Hard Credit Check: What Canadians Need to Know About Credit Inquiries
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Credit checks are performed to assess your creditworthiness for various reasons. Your credit report and score are critical when applying for a mortgage or credit card, getting a car loan, signing a lease and, in some cases, applying for a new job.
Lenders, landlords and even employers can run one of two types of credit inquiry: soft or hard checks. While most Canadians are familiar with the concept of a credit check, few understand the impact different types of credit inquiries can have on their credit profile.
Key Takeaways
- Soft checks don’t impact your credit score and are not visible on your credit report.
- Hard checks can temporarily lower your credit score and are visible to anyone pulling your credit report.
- Multiple hard credit inquiries in a short period can raise red flags that you are under financial stress.
What Is a Credit Inquiry?
A credit inquiry is a request to access your credit report. There are two main types of credit inquiries: soft checks and hard checks. In Canada, you typically need to provide written consent for any business or individual to access and use your credit report unless you reside in Nova Scotia, Prince Edward Island, or Saskatchewan. These provinces only require that you be informed that a business or individual is checking your credit report.
Your credit report contains detailed information about your credit history, including everything from payment habits to how much debt you carry and what accounts you’ve opened and closed. Credit inquiries help evaluate your creditworthiness before being approved for a loan, credit card, mortgage, or rental agreement.
In some cases, you may need a credit check performed as a condition of employment, particularly if you are applying for a role in financial services, government, or roles involving handling money or sensitive information. This inquiry helps assess your sense of financial responsibility, decision-making, and potential risk in roles where trust and accountability are key. For example, an employer might want to ensure that a candidate with access to large sums of money or confidential data isn’t under severe financial stress that could lead to unethical decisions.
What Is a Soft Credit Check?
A soft check happens when your credit report is checked for reasons unrelated to a credit application, such as when you check your credit score or when a lender pre-approves you for a credit limit increase or credit product without a formal application. These checks do not affect your credit score.
Soft credit inquiries provide a snapshot of your credit history without signalling to lenders that you are actively seeking credit. These checks are mainly for informational purposes and won’t appear on the version of your report that lenders use when making lending decisions.
Soft Check Examples:
- Checking your credit score
- Employment and background checks
- Rental applications
- Pre-approvals for credit increases or loan products
What Is a Hard Credit Check?
A hard check happens when you actively apply for new credit, such as a credit card or line of credit. These checks are recorded on your credit report and show a timeline of when you have applied for new credit, which can cause a temporary dip in your credit score.
Hard credit inquiries provide a full review of your credit report and are visible to other lenders. These checks assess your creditworthiness and determine how likely you are to repay borrowed funds. They are used to assess your credit score, existing debt, payment history, and credit utilization to decide whether to approve your application and at what interest rate.
Hard Check Examples:
- Applying for a mortgage
- Applying for a car loan, personal loan or line of credit
- Signing up for a new credit card
- Applying for a credit limit increase
- Signing up for a phone or internet plan
- Rental applications with some landlords or property managers
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How Hard Checks Affect Your Credit Score
Every hard check reduces your credit score, with the amount of impact depending on your credit history. A single inquiry will typically take very few points off your credit score. However, even a single inquiry can have a greater impact on your score if you are new to credit or have a short credit history.
If you have multiple hard inquiries within a short period of time, this could significantly impact your credit score and may raise red flags, suggesting you’re seeking multiple credit products at once. This could signal to lenders that you are under financial stress and could be at greater risk of default when assessing your ability to repay a loan.
Hard Check Mortgage Exception
Canada’s credit bureaus typically allow a grace period for mortgage rate shopping if made within 14 to 45 days, depending on the credit scoring model used. If you’re applying for a mortgage with multiple lenders to compare rates during this window, it will count as a single inquiry to minimize the impact on your credit score. This allows you to shop for the best mortgage rates and terms with multiple lenders without significantly impacting your credit score.
Credit Checks and Mortgage Pre-Approvals
Most lenders perform a hard credit check when pre-approving borrowers for a mortgage and holding a rate. This is a standard step in the process and helps determine how much you can borrow, what interest rate you may qualify for, and how risky you appear as a borrower.
If you opt for a pre-qualification, nesto uses a soft credit check to protect your credit. However, if you want to proceed with your mortgage application, a hard credit inquiry will be performed at the time of approval once all documents have been submitted and accepted.
All lenders, including nesto, will require a new hard credit check no more than 30 days before your mortgage closing if you have an extended closing period, say 120 or 150 days long, as your original credit check will no longer be valid for your mortgage file.
Frequently Asked Questions (FAQ) on Soft vs. Hard Credit Checks
Do mortgage pre-approvals involve a hard or soft credit check?
Most mortgage pre-approvals in Canada require a hard credit check, although some may do a soft check if you are getting a pre-qualification to determine if it’s worth proceeding.
Can I check my credit report without affecting my score?
Yes, you can check your credit report without affecting your score, as it is considered a soft check. You should check your credit report at least once a year to monitor your score and identify issues like reporting errors or fraud that could impact you.
How long does a hard inquiry stay on my credit report?
Depending on the credit bureau’s reporting, hard inquiries could stay on your credit report for up to 36 months.
Final Thoughts
Understanding the difference between soft and hard credit checks is essential when preparing to buy a home, apply for loans, or shop for financial products in Canada. Managing when and how these checks happen can help you maintain a strong credit profile and get the best mortgage rates available when the time is right.
Contact nesto mortgage experts today to explore your financing options and secure your best mortgage rate and customized strategy.
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