✔ Whether you’re getting a credit card, applying for a loan, or renting an apartment, a credit check will need to be done.
✔ Credit checks are common in Canada and are only done with your permission.
✔ There are two types of credit checks: hard and soft. Hard checks are the ones that can have an impact on your credit score.
Whether you are applying for a credit card, borrowing money, renting an apartment or getting a Canadian mobile plan, these businesses or individuals (with your permission) will complete a credit check. It provides them with a report which shows your credit history, credit score and overall creditworthiness.
So, what is a credit check and how does it work?
A credit check happens when a company or a person requests access to the information in your credit report. Your report is a snapshot of your financial history that ranges from credit card applications to loans you’ve paid off. Your report is securely housed in one of two credit bureaus in Canada, Equifax and TransUnion. It’s their job to provide credit information to lenders so they can decide whether or not you can borrow money.
Types of credit checks
There are two types of credit checks, “hard” and “soft. Hard checks can include inquiries by employers, landlords and credit card companies. Soft checks are requests you make or when a financial institution or lender you already have a relationship with asks for updated information.
HARD CREDIT CHECKS
- Vehicle loan application
- Credit card application
- Personal or student loan
SOFT CREDIT CHECKS
- Check of your credit score (Equifax or TransUnion)
- “Pre-approved” offer for borrowing
- Employee background checks
Can credit checks impact your credit score?
Soft checks don’t affect your credit score because they do not show that you are looking to borrow and take on more debt. Hard checks, on the other hand, show up on your report and may lower your score by multiple points.
Here are three tips to reduce hard credit checks:
1. Don’t apply for credit you don’t need
Frequently applying for credit (like a loan, credit card or line of credit) from a variety of lenders leads to more hard hits showing up on your report. Limit how often you apply for credit or allow lenders to check your score.
2. Limit how often you apply for credit
Credit checks can stay on your report for at least three years. Frequent inquiries throughout the year will likely prompt lenders to ask why there are so many. It’s a good idea to keep the number of checks to a minimum. If you need to get a loan, it’s okay to have lenders do a hard check. As long as they are done within several weeks, credit bureaus will treat them as one inquiry.
3. Monitor your report for mistakes
It’s good practice to check your credit report once, or even twice a year with Equifax and TransUnion. If you spot a mistake, like a hard hit you didn’t allow, on your report, it’s your responsibility to report it right away. Check out our tips for disputing your credit report.
As you build your new life in Canada, you’ll likely need access to credit – whether it’s your first credit card, a personal loan, or a mortgage on your first home. At easyfinancial, you can apply for a loan without affecting your credit score. That’s because we use a soft credit check to see what you qualify for before completing the loan application. Only once you decide to take the loan, will we do a hard credit check to complete the approval process.
Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter.