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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
What Is a Good Credit Score in Canada?
How to build strong credit
- 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:
- 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:
- 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.
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