IN THIS ARTICLE:
When a lender views your credit report with either of Canada’s two main credit bureaus, Equifax and TransUnion, it is noted on your credit report as an inquiry and becomes a part of your credit history.
There are two types of inquiries: a hard inquiry and a soft inquiry. Let’s talk about how lenders use these two types of credit checks for different reasons and more importantly, how they affect your credit score.
A soft inquiry is simply a review of your credit report for informational purposes, such as determining if you are eligible for a pre-approved offer, or to verify who you are. Unlike a hard credit inquiry, a soft inquiry is only visible to you and is not seen by other lenders therefore it will not affect your credit score.
Here are some common soft inquiries:
- Checking your own credit score on Equifax or TransUnion
- Using a credit monitoring tool to monitor your credit score (such as creditoptimizer)
- Most “pre-approved” offers with existing service providers or credit card companies
- Employment verification (i.e. background check)
A hard inquiry is used to approve an application for new credit. For example, if you are applying for a new credit card or line of credit the lender will use a hard credit check to check your credit (with your consent) as a part of their approval process.
Unlike a soft inquiry, a hard credit check is visible on your credit report to other lenders and can affect your credit score.
Here are some common hard inquiries:
- Auto loan applications
- Credit card applications
- Student loan applications
- Personal loan applications
Applying for an easyfinancial loan will not affect your credit score. We use of a soft credit check so you will be able to see what you qualify for before deciding to proceed with the application. If you decide to proceed to get your loan, we will then use a hard credit check to complete the approval process and it may affect your credit score.
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How does a hard credit check affect my credit score?
Hard credit checks could have a temporary, negative impact on your credit score for example, having multiple hard credit checks in a short period of time on your credit report can raise concerns for lenders. This is important to remember when you’re shopping for the best rate on a personal loan or credit card.
Hard credit checks are only one of the five factors that make up your credit score. Other factors such as payment history, credit utilization ratio (which is the amount of credit you’ve been approved for compared to the amount of credit you’re using), mix of credit types, and length of your credit history all factor in to your credit score. You can find more helpful information about understanding your credit score here.
Whether you have bad credit or are establishing credit for the first time, there are several ways you can build good credit. The three most common ways are through a secured credit card, mobile phone subscription plan, and personal loan. If building credit is a top priority for you, visit our credit education centre on goeasy Academy for tips, tools and resources to help you build good credit faster.
easyfinancial can also help you build your credit with a personal loan and flexible payment options. Visit our website or give us a call at 1-888-502-3279 to learn more.