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Credit Checks 101: Credit Checks on Your Credit Report

Most Canadians know financial institutions and lenders run credit checks on potential customers. However, there are other companies that routinely check and use credit scores as well. And depending on the type of credit check - also known as a credit pull - it can have a significant impact on your score. In fact, around 10 per cent of your score is calculated by the number of credit checks completed.

So, what can you do? Get educated on what types of credit checks there are, who performs them, and how to navigate the rules to ensure a lower impact on your score.

Types of Credit Checks

There are two ways companies will check your credit, either through a soft pull (soft credit check) or a hard pull (hard credit check).

Soft credit pulls
Simply put, a soft pull is when a business is checking your credit for non-lending purposes. Only you and the entity making the credit inquiry can see a soft credit pull. So, when a potential lender looks at your credit report, they will not see any soft pulls in your history.

Types of soft pulls
Credit scores are so important in Canada that they can even impact your ability to get a job. Companies that routinely run soft credit checks include utility companies, mobile companies, insurance agencies, landlords and hiring companies. Normally, these types of credit checks have no impact on your score but some learn the hard way that just because a company says it’s doing a soft pull, doesn’t mean they always do. For example, utility companies in Canada may say they perform soft pulls, but they’re set up as a hard pull. Some utilities are open about running hard checks on new customers.

Hard credit pulls
This type of credit check is aptly named; hard credit pulls have a hard impact on your score. They’re completed by lending institutions when you apply for a loan. Having too many hard checks in a short amount of time can lower your credit score by 7-10 points.

Types of hard pulls
Whenever you apply for a loan, including credit cards, mortgages, personal loans, lines of credit and more - you’re going to have a hard pull completed. A hard inquiry stays on your credit report for about three years.

Tips to Navigating Credit Checks

Navigating the world of credit checks doesn’t have to be confusing. Here are a few tips to working with credit checks and how to time them to have less impact on your credit score.

Ask if a soft or hard check will be done: In any situation where a company requests that you sign a document saying they have the right to pull your credit score, ask them if it is a soft or hard check. As mentioned above, sometimes companies may not know their credit checks are set up in a certain way. If you want to be absolutely sure, reach out to Equifax or TransUnion and ask if the particular company is set up for soft pulls or hard pulls.

Consider other alternatives: In some cases, having your credit checked may not be necessary at all. It may be best to choose a company who runs a soft check, or doesn’t check at all, over a company who runs hard checks. For example, if you need a loan, consider a 310-LOAN payday loan. We don’t pull your credit score because we don’t need it for approval. That means no hits on your credit at all.

Time credit checks wisely: While new loan credit checks will appear on your credit report, multiple credit checks in a short period of time, anywhere from 14 to 45 days, can be considered “one inquiry.” That means you can feel free to shop around for certain types of loans. Be sure to complete the credit checks within a week or so to ensure the inquiries are lumped together. Take note: This rule does not apply to credit cards so be careful when applying for multiple cards.

Plan ahead of time: As mentioned, multiple inquiries in a short period of time for one type of loan will not impact your score more than once. But - multiple inquiries on several types of loans definitely will. If you want to buy a house, that is not the time to get a loan for a new car. The inquiry for the mortgage could end up impacting your auto loan percentage rate.

Do your research on loans: Before seeking preapproval for a loan, do your research to narrow down potential lenders. You don’t want to apply for a car loan at multiple places only to find out several of them levy fees or have terms you aren’t happy with. Those hard credit checks won’t go away for years. Limit the number of lenders to ones you’d be happy to work with before you ever apply for the loan.

It’s hard enough to keep your credit score high - it doesn’t have to be impacted by something like a credit check if you understand how to make the system work for you. Knowing what types of credit checks impact your score, who is running the credit check, and how to time them will help you ensure your credit score is minimally impacted. For more financial facts and education, check out the other stories on our blog now!

  
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