Soft vs Hard Credit Checks in Canada: What's The Difference?

The difference between hard vs soft credit checks may seem confusing at first. Knowing a little about them can help you when managing your financial life and even help preserve your credit score a little.

 

That’s what we are discussing today.

 

Credit inquiries take two main forms, soft inquiries and hard inquiries. They are also known as hard and soft searches but are the same thing.

 

When you’re shopping around for a car loan, knowing the difference between the two can make quite a difference to your credit score.

 

Soft Credit Checks

Soft credit inquiries are basic checks performed by organizations to check your score and to perform a cursory check on creditworthiness. They are not a full check of your credit history.

 

If you apply for a new phone contract, car insurance, home insurance, car loan pre-approval or something like that, the company will perform a soft inquiry.

 

A soft inquiry can show your payment history, type and number of loans or credit cards you have, your credit utilization and other basic information. Essentially, the organization performing the search requests the data they need to see and nothing else.

 

As these inquiries are not an application for credit, they don’t appear on your credit report and will only usually be visible to you. They do not impact your credit score.

 

Hard Credit Checks

Hard credit inquiries are performed when you apply for some kind of credit. This is a full inquiry into your report and will show everything above plus all data collected by the bureaus.

 

That can include missed payments, lenders and types of borrowing, bankruptcy notices, consumer proposals and anything else on your report. It can also show failed loan applications.

 

As a hard inquiry is only performed when you apply for credit, it remains on your report for anyone to see. The intent is to alert lenders to people who apply for a lot of credit in a short period of time.

 

Why Soft vs Hard Credit Checks Matter

Hard and soft inquiries matter because one impacts your credit score while the other does not.

 

Hard inquiries can impact your credit score so they definitely matter. You may find that after an application for a car loan that your score dips a little. This is normal as you are taking on more debt. Once you have made a few payments on time, your score should fully recover.

 

 

 

The whole idea of the hard inquiry is to show any potential lender what type of products you have been applying for and when. Not only does it paint a picture of your financial life, it can also alert lenders to someone applying for a lot of loans at once.

 

We mentioned that above but it’s worth mentioning again. Applying for finance with more than one institution is not the best idea.

 

Get pre-approved by all means as these use soft inquiries but don’t actually apply for loans unless you mean to take it. Otherwise you will soon find lenders refusing your application, which will remain on your credit report for a while and your credit score will dip accordingly.

 

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