Soft Vs Hard Credit Checks

There are various scenarios where lenders, creditors, or even credit-holders themselves may want to check-in on their credit history through their credit report. These check-ins are known as both credit checks or credit inquiries. 

There are two types of credit checks, hard checks – which are typically part of credit application processes and can affect your credit score, and soft checks – which are normally part of a screening process outside of a credit application that have no impact on your credit score whatsoever.

For more information about credit checks, specifically the difference between soft credit checks and hard credit checks, take a look at this blog post.

So, What Is a Credit Check?

Before we go any further, let’s start with the basics, and by basics we mean defining what exactly a credit check is in the first place.

In simple terms, a credit check is when a lender or creditor takes a peek at your credit report to assess your creditworthiness through your credit history.

There are two main types of credit checks, hard checks and soft checks. We’ll break down these two types of inquiries in the next couple of sections. 

What Is a Hard Credit Check?

The more formal inquiry of the two, hard credit checks are a crucial step in multiple credit application processes. Typically, lenders and creditors can only access your credit report through a hard inquiry when given permission to do so. These checks allow lenders and creditors to make an informed lending decision based on your credit history. Your credit report may be pulled from one or both Canadian credit bureaus (Equifax and/or TransUnion).

These types of credit checks or pulls are usually implemented for things like loans. For more insight into when a hard credit check might apply, take a look at the next section.

Examples of When Hard Credit Checks Apply

As promised, we’ve put together a list of scenarios where hard credit checks may apply:

• Credit card applications
• Car loans
• Mortgages
• Rental applications (depending on the landlord or leasing company)
• Applying for a line of credit
• Student loans
• Personal loans

How Does a Hard Credit Check Affect Your Credit Score?

Unfortunately, hard credit checks can affect your credit score by lowering them a bit (by about 5 points or less per hard inquiry). Usually, one inquiry won’t make a huge dent in your credit score, but multiple hard inquiries might tell lenders and creditors that you’re more of a risky investment – especially for inquiries pertaining to situations like credit card applications.

How Long do Hard Credit Checks Appear on Your Credit Report?

Hard inquiries will sit inside your credit report for up to two years. That said, if you pay your bills on time and keep your credit utilization ratio low, you can expect a healthy credit score to surge sooner. In fact, many scoring models don’t include hard credit checks in their calculations after about 12 months.

Can You Dispute a Hard Credit Check?

It’s actually super important to keep an eye on your credit report to review your credit history, creditworthiness, and detect any fraudulent activity. Fraudulent activity doesn’t exclude itself from hard credit checks, which are hard inquiries that would have occurred without your knowledge or permission.

If you notice a fraudulent hard credit check during one of your routine credit report reviews, reach out to the creditor responsible for the inquiry, sometimes you might not recognize the name of the creditor because the check was placed under an alternative lending partner or retailer connected to the lender/creditor.  You can also dispute the inquiry immediately with the corresponding credit bureau. If the hard credit check is indeed fraudulent and was enacted without your consent, then the credit bureau will likely have the authority to have the inquiry removed.

Remember to check your credit reports through both Equifax and TransUnion and ensure that your credit history looks accurately portrayed by each bureau.

How to Avoid too Many Hard Credit Checks

There are a few tips to keep in mind to avoid accumulating too many hard credit checks:

• Limit or stagger your credit applications. Your credit score can take a bigger dip when you collect multiple hard inquiries over a shorter period of time.
• Take advantage of pre-qualifications. Pre-qualifications (when applicable) can turn hard credit checks into soft credit checks by providing lenders and creditors with a sneak peek of your eligibility without affecting your credit score.
• Peruse during the grace period. There’s actually a period of time where you can rate-shop for mortgages and loans and initiate multiple inquiries without majorly impacting your credit score. Usually this grace period lasts up to two weeks and counts several hard inquiries as one – minimizing the damage altogether.
• Be picky about credit applications. Only apply for credit that suits your financial situation and that is absolutely necessary. If there’s a chance you could post-pone a credit application and opt to save up instead, this could be a smart choice to safeguard your credit score.
  
  

What Is a Soft Credit Check?

Like a hard credit check, a soft credit check will also appear on your credit report, however, unlike a hard inquiry, a soft inquiry won’t affect your credit score.

Soft inquiries often take place as a background check or screening measure that has nothing to do with a credit application (as opposed to a hard inquiry that has everything to do with credit applications).

Examples of Soft Credit Checks

To paint you a better picture of what soft credit checks are, we’ve also compiled a list of scenarios where soft inquiries may apply:

• When you check your credit report yourself (despite the mainstream myth, checking your own credit report does not affect your credit score – so snoop as you please!)
• When your current credit card company attempts to prequalify you for a product or service
• Employment verification and background checks
• Loan pre-qualifications
• Promotional offers that may be provided by financial institutions
• Rental applications (depending on the landlord or leasing company)

How Long Do Soft Credit Checks Appear on Your Credit Report?

Like hard credit checks, soft credit checks will remain on your credit report for up to two years. That said, promotional inquiries (which are considered soft inquiries) may only stay on your credit report for one year.

It’s also useful to note that only you will be able to see any soft inquiries applied to your credit report. This is a nice contrast to hard inquiries, which can also be seen on your credit report by both lenders and creditors.

Conclusion

From time to time, your credit report will require some check-ups. These check-ups can be minor, screening your credit history without impacting your credit score, referred to as soft credit checks. On the other hand, these check-ups can be more invasive in order for lenders and creditors to make lending/crediting decisions, resulting in a slight impact on your credit score, these inquiries are called hard credit checks.

To minimize any impacts on your credit score, always check to see if a soft check can be used instead of a hard check (when applicable), minimize or spread out your credit applications (unless you’re rate shopping in the two-week grace period window), and monitor your credit reports on both credit bureaus regularly to spot any inaccuracies that can be disputed.