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Hard vs Soft Credit Inquiries: Do They Impact Your Credit Score?

hard vs soft credit inquiriesYour credit history is built from information sent to Canada’s credit bureaus by companies that lend you money or issue you credit – like banks, credit unions, and retailers. Credit bureaus then use that information to calculate your credit score. A range of factors influence the score you receive – including lender inquiries into your history when you apply for new credit.

Why Your Credit Score is Important

Your 3-digit credit score, ranging from 300 to 900, helps certain lenders determine your potential risk as a borrower. In Canada, credit scores are frequently rated as follows:

Excellent = 741-900

Good = 690-740

Average = 660-689

Below Average = 575-659

Poor = 300-574

Because it’s viewed as a measure of your financial health, you won’t find it easy to get approved for a mortgage loan or any other type of credit from a major financial institution without a solid credit score. And every time you make such a request, it triggers an inquiry into your credit history.

The Difference between Hard and Soft Credit Inquiries

There are two types of inquiries that lenders can initiate when you apply for a loan or line of credit: hard credit inquiries (also known as hard credit checks or hard pulls), and soft credit inquiries (also known as soft credit checks or soft pulls).

A hard credit inquiry happens when you apply for most consumer debt loans or request an increase to your credit limit. The lender involved will check to see if your credit history demonstrates enough financial responsibility to warrant approval.

Hard pulls are common when you apply for a mortgage, credit card loan, line of credit, or a vehicle, student, or personal finance loan.

A soft credit inquiry, meanwhile, happens when:

  • you check your own credit report, or
  • a lender (or landlord, or employer) checks your credit history for informational reasons – including for background screening purposes

A soft pull basically provides an overview of your payment history, the personal loans, mortgages or lines of credit you already have, and any collections activity.

How Credit Inquiries Impact Your Credit Score

Credit inquiries account for about 10% of your credit score calculation. But while soft pulls won’t negatively impact your score (and don’t usually show up on your credit report to other lenders), hard credit checks always affect it.

Too many hard pulls over a short period of time, in fact, can knock your credit score down by as much as 10 points with each hard credit pull.

The reason, according to credit bureaus like Equifax and TransUnion, is that credit shopping can be a signal to lenders that you’re either struggling financially, or that you’re overextending yourself by taking on more debt than you can comfortably repay.

Unflattering credit information can remain on your credit report for 7 years.

So if you’re trying to remedy an ailing credit score, you should make a point of applying for new credit or loans sparingly – or consider a loan from Alpine Credits, where homeowners get approved and your loans are not reported to credit bureaus.

Remember: the lower your credit score, the greater a financial risk you pose to banks and other mainstream financial institutions. To minimize that risk, some major lenders simply won’t consider bad credit loans.

The good news, however, is that if you own your own home, you can be approved for a home equity loan or debt consolidation loan with Alpine Credits regardless of your credit rating. Our loan application process won’t negatively impact your credit score. And successfully meeting your home equity loan payments may even help you improve it.