Soft vs. Hard Credit Inquiries – What’s the Difference? | Refresh Financial

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Soft vs. Hard Credit Inquiries – What’s the Difference?

Soft vs. Hard Credit Inquiries – What’s the Difference?

Have you ever applied for a credit card? An auto loan? Maybe a new wireless plan? You’ve probably been told that your credit will be checked, or that it might be a ‘hard’ credit inquiry. You might be asking yourself… Soft vs. hard credit inquiries – What’s the difference?

We're going to take a closer look at what credit inquiries are, the different types of credit checks and how they can affect you.

What is a credit inquiry?

A credit inquiry is when an organization or individual requests to see information stored in your credit file. This is commonly referred to as a 'credit check'.

What is a “soft” credit check?

A 'soft' credit check is when a potential landlord or employer requests to see your credit file for informational reasons to determine eligibility.

When a potential landlord or employer wants to see your credit history, they'll conduct a 'soft check'. These checks are purely for informational reasons and not for the purposes of assessing your risk in repaying a loan. Soft checks can occur without your permission and they do not negatively affect your score, you can also check your own credit score yourself.

What is a “hard” credit check?

Lenders will want to assess your level of risk when looking to borrow money. Generally speaking, a higher risk means you’ll pay more in interest, or could even mean that you’ll be declined outright. Lower risk means access to higher borrowing amounts and cheaper interest rates. The lender will determine your level of risk based on your credit score.

When a lender checks your score after you’ve applied to borrow money, it will be a ‘hard’ credit check. These types of credit checks require your permission before they’re carried out, however, they can reduce your score.

Too Many Hard Credit Inquiries?

Too many inquiries can make you appear desperate because a hard credit check indicates that you are actively looking to borrow money. This can negatively impact your score. Hard credit checks can remain on your credit report for up to six years.

Read out blog “These Things Are Damaging Your Credit Score Canadians”.

How To Recover From A Hard Inquiry

What can be done to reverse the damage from numerous credit checks?

The best way to allow your score to recover is with time. Try and wait as long as you can before incurring any more hard inquiries. This means you may have to wait a few months before applying for credit products or look at actively rebuilding your score through credit rebuilding programs.

Playing it Smart

Looking for a credit card or maybe a loan? Something to avoid is the ‘apply until you get approved’ strategy.

Instead, check your score yourself and speak with your financial institution. Having an understanding of where your credit score is, will give you an idea of whether you’ll be approved for the credit product you’re after and if it’s worth the hard credit check once you apply.

If you already know your credit score, you can avoid needless credit checks by consulting with your financial institution and applying for products that you’ll likely be approved for.

The Exception

In Canada, mortgages, student loans, and auto loans are the exception. In this arena, multiple credit checks in a short period of time, are treated as a single inquiry. This will allow you to continue shopping around for the best deal!

Were you aware of the differences between hard and soft credit inquiries? Can you think of anything else that separates the two? Let us know in the comments!

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