What Is A Soft Credit Check in Canada: What You Need to Know

While applying for a new loan, mortgage or credit card, you may have encountered the term “soft credit check” during your research. But what exactly is a soft credit check in Canada, and how does it differ from a hard one?

Understanding the difference between soft and hard credit checks is crucial in navigating your financial journey. This article aims to demystify soft credit checks, outlining their significance, differences, and impact on credit scores for the Canadian audience.

What is a Soft Credit Check in Canada?

Soft credit checks provide a high-level overview of your credit history without affecting your credit score. Unlike hard inquiries, which can temporarily impact your credit score, soft checks offer preliminary insights without diving into detailed specifics.

Understanding Credit Scores in Canada

Before we dive into the difference between soft and hard credit checks, it is important to understand what a credit score is and what makes up your credit rating in Canada.

In Canada, your credit score is a number between 300 and 900, which signifies your “creditworthiness” to lenders. A.K.A., are you a safe person to lend money to? Do you have good financial habits when it comes to using credit?

It is important to know what makes up your credit score. Credit checks are activities that fall under the”Enquiries” section, which comprise 10% of our credit score.

What makes up your credit score in Canada

What Is a Good Credit Score in Canada?

Anything above 600 is generally considered a good credit rating in Canada. If you have a low credit score or you are new to Canada with no credit at all, there are ways you can begin to build or rebuild your credit.

A secured credit card may be a good way to start building/rebuilding your credit. It acts similar to a prepaid card – your credit limit is the amount of deposit you put down. As you use and repay it, it helps you build your credit.

A secured card uses your security deposit as the credit limit. Neo Financial offers a secured credit card with no annual fees to help you build your credit rating in Canada! You can start with as little as a $50 deposit; no hard credit check is required to apply. You can utilize tools like this to build your credit and earn cashback on your everyday spending as well!

How to build strong credit

Working on building strong credit habits can help improve your score. I am exclusively a credit card user. I never carry a balance and pay zero interest on my cards. I use tools to help me track my spending and ensure I stay up to date on payments. I also can reap the cash back and travel rewards that come with my credit cards without any worry that I will be going into debt.

This is only possible with good credit habits, but learning takes effort. Credit cards are not inherently bad – using them correctly can be quite impactful for you!

Here are the top tips for smart credit use in Canada:

Always use less credit than your limit – do not max out your cards!
Always pay your bills on time – in fact, you don’t have to wait for the bill to come; you can pay earlier or more frequently as you use your cards.
Always pay the minimum – this is a 100% must-do! Don’t miss payments. Missing payments has a big impact on your score since payment history is worth 35% of your score.
Don’t carry a balance – make a promise to yourself to pay your balance in full every month. If you are in debt now and are working toward a debt-free life – make this a priority goal!

Differentiating between Soft vs Hard Credit Checks

Hard Credit Checks:

Hard checks happen when you apply for credit or open various types of accounts – such as opening a new account with utility providers or a cell phone company, or when applying for credit cards, financing or mortgages.

Occur during credit applications (e.g., loans, credit cards, mortgages) to check if you have a good credit rating in Canada.
Can affect credit scores and leave a record on credit reports.
Lenders need your permission to run a hard check.
Hard checks are visible on your credit report for 2 years

Soft Credit Checks:

Soft checks can be used to pre-qualify you for credit products or as a part of a background check. When you check your own credit, it’s also considered a soft check.

Utilized for background checks and pre-approval offers.
Offer a basic credit history overview to the lender.
Does not negatively impact credit scores.
Are not visible to lenders

Importance of Soft Credit Checks in Canada

Lenders leverage soft credit checks to assess the creditworthiness of potential clients without affecting their credit scores. Understanding these checks is pivotal for informed credit-related decisions.

Performing a Soft Credit Check Yourself in Canada

Options for soft credit checks include:

Online credit monitoring services.
Requesting a credit report from major Canadian credit bureaus.

Benefits of Soft Credit Checks for Consumers

Soft credit checks offer advantages such as:

Allows consumers to check their own credit without impact
No direct impact on credit scores.
Allow for easy pre-approval offers for credit cards and loans.
Transparency in job applications.
Tailored insurance quotes based on risk profiles.

FAQs about Soft Credit Checks in Canada

Are soft checks visible on my credit report?

Yes, Soft checks are visible on your credit report. Equifax confirms that soft checks can be seen, but only by you, not by lenders.

Do Soft Checks affect my credit score?

Soft checks do not have any negative impact on your credit score. Only hard checks do, and a hard check could result in a 5 to 10-point dip in your score on average.

Do I have to authorize a company to conduct a soft check?

To conduct a soft credit check, the lender does not need your permission; however, if they wanted to do a hard check, they would.

How do I know if someone has done a credit check on me?

Review your credit report and take a look at the inquiries section. You will be able to see a list of hard and soft inquiries there.

How to Check Your Credit Score for Free in Canada

You can contact Canada’s two credit reporting bureaus – Equifax and Transunion – for a free copy of your credit report. However, they do not always make it easy and tend to push those trying to find the free option toward a paid service.

You may want to utilize a free service like Borrowell, which provides Canadians with a user-friendly and free way to check their credit.

Navigating Soft Credit Checks in Canada

Understanding soft credit checks empowers consumers in the Canadian credit landscape. These checks offer insights into creditworthiness without affecting credit scores, enabling confident and informed financial decisions.

Regularly monitoring credit reports is pivotal to addressing errors or fraudulent activities. By taking charge of your credit journey, you pave the way for sound financial management and informed decisions that align with your long-term goals.

About The Author

Jessica Morgan

Jessica Morgan is the founder and CEO of Canadianbudget.ca. She is passionate about personal finance and helping Canadians improve their financial literacy by providing more Canadian focused financial content. A millennial mom of one, she has a burning obsession with all things personal finance.
Jessica has a BA in East Asian Studies from York University and a Masters in Business Administration from Toronto Metropolitan University. She is a career public sector employee with a Hybrid Pension, and an advocate for Canadian women to improve their personal finance knowledge.

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What is a soft credit check in Canada