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Soft pulls differ from hard checks because they don’t give you a full credit report. It’s essentially a brief rundown of your credit history and your credit score. A hard check will allow lenders to see years back in your report and follow your total credit history. This is common when you apply for a loan, credit card, or other credit products.
How Many Points Will a Soft Credit Check Reduce Your Credit Score?
The great thing about a soft credit check is that it doesn't affect your credit score at all. This is because soft inquiries are separate from inquiries that are linked directly to your credit report. There’s also no guarantee that this check will even show up on your credit report. This is why a credit card company checks with a soft pull every few months to see if you’re available for an increase.
Soft Credit Checks and if They’re Free
In Canada, soft credit pulls are free, unlike hard inquiries. In fact, you can do a soft credit check anytime you like to check your credit rating without hurting your credit. Free credit monitoring sites like Credit Karma, Borrowell, and Clear Score perform soft credit checks weekly to keep you up to date on your credit score. You can also get a free copy of your credit score directly with a soft check from TransUnion and Equifax.
Examples of Soft Inquiries
Soft credit inquiries are quite common and often used for pre-approval credit offers, employment applications, and even insurance applications. They are also often used by landlords to determine if renters are a good fit and by utility companies to determine whether you are required to make a security deposit.
Lenders also often use soft credit inquiries to determine if you’re eligible before a hard check is done to determine the specifics of your eligibility. Some financial institutions will also perform them if you want to open a bank account or get an overdraft. This is because soft inquiries just provide the basic financial information that they need. A hard credit check will only be performed by financial institutions if they’re potential lenders for financial products.
How Hard Credit Checks Work
Hard credit checks, also known as hard inquiries or hard pulls, are what lenders use to determine your full eligibility for a credit product. A hard credit inquiry gives lenders a view of your full credit history, including your payment history, the amounts you currently owe, and any collections, bankruptcy, or consumer proposals you’re involved in. Since these checks are so in-depth, each check will negatively affect your credit score by a few points, usually about five points, but it can be up to fifteen. So even though it does impact your credit score, the impact is small.
If you’re looking to make a larger purchase, such as for a mortgage or car loan, it’s common to have multiple hard inquiries in a short period of time (this is known as a grace period). This happens when you’re searching for the best lending option, and each lender needs a full, in-depth look at your credit history. In a case like this, your credit score is only going to get hit once for the multiple inquiries in a short period of time, since it’s apparent you’re not applying for multiple credit sources. It’s counted as just one inquiry.
Since there are two major credit bureaus in Canada, it’s up to the lender which credit report they pull for new credit. While your scores with Equifax and TransUnion shouldn’t be that different, they may vary slightly since not every lender will report to both credit bureaus, and they have different credit scoring models. It’s common to have a 50 to 100 point difference between your credit scores. How many hard inquiries you have with each credit bureau also makes a difference, since each hard inquiry affects your credit score.
Will a Soft Credit Check Show any Defaults?
No, a soft credit check doesn’t show any defaults. In fact, a soft credit check shows very few details. If a lender wants to know the specifics of your credit report, they have to do a hard credit check. That’s the only way to determine if you have any defaults, missed payments or outstanding balances on your credit report.
Unknown Soft Inquiries on a Credit Report
It’s not uncommon for companies, especially ones you’ve worked with in the past, to perform random soft credit checks to see if you’re eligible for a credit increase or different credit products. The good part is, these soft searches aren’t visible to other lenders. These searches won’t impact your credit or your ability to obtain new credit at all. It’s the hard credit checks that you didn’t authorize that you have to worry about.
If a hard credit check was done on your credit without you authorizing it, then it’s likely someone is trying to take out credit in your name. In this case, you would file a dispute with the credit bureaus. You can even contact the company to let them know that you didn’t apply with them and that the application is fraudulent. You should also file a police report and forward it to the creditor for proof.
What a Soft Credit Check Shows
When a soft credit check is performed, it only shows your basic information. This includes your full name, date of birth and your home address. It will also show your credit score, how many different credit lines you have, their types, your payment history, and your current credit utilization. They don’t show the entirety of your personal finance situation. This is often enough information for employers and utility companies to know if you’re a good credit risk or not. If more information is needed to show other factors, then a hard credit check will have to be done.
Failing a Soft Credit Check
You might be relieved to hear that you can’t actually fail a soft credit check. Lenders don’t use soft credit checks to make a final decision. However, if you do a soft check with utility companies and don’t meet their minimum standard, you may be required to make a security deposit before you’re able to open an account.
When it comes to a phone contract, you may have to purchase your phone outright instead of making monthly payments. Lenders who use soft credit checks to make offers or increase your credit limit may not make you any offers if your credit score isn’t where they want it to be.
The Difference Between Soft and Hard Credit Checks
While soft and hard credit checks are both ways to check your credit, they are actually extremely different. While a lender doesn’t need your permission to perform a soft credit check, they do need it to perform a hard one. Another difference is that soft inquiries only give the lender or person checking it a small amount of information. A hard inquiry shows your full credit history, loan amounts, payment history, delinquencies and more.
When it comes to hard credit checks, it’s also important to note that they’ll stay on your credit file for up to 36 months. A soft credit check may not even appear on your credit report. You can also have as many soft credit inquiries done per year as you choose. Hard inquiries, on the other hand, are recommended to be limited. In fact, it’s recommended that you have no more than 5 hard inquiries done per year.
What many people forget as well is that if you’re just checking your own credit score and report, a soft inquiry is more than enough. It will give you enough information to know if there are any issues with your credit report and what your credit score is. A hard inquiry is meant for lenders. It gives them a deep, in-depth knowledge of your full credit history, as well as your financial situation, allowing them to make an informed decision on your credit application.
Ultimately, whether you have a hard or soft pull done depends on what you’re applying for. Something like auto loans will allow for multiple hard credit checks, but an increase from a credit card issuer or a potential employer will only result in a soft check since they just require a basic background check.
How a Soft Credit Check is Done
Just like hard inquiries, soft credit checks are done with the credit bureaus. In Canada, these bureaus are Equifax and TransUnion. Since you don’t have to give permission for a soft credit check to be done, lenders and others who are able can request them at any time. Free credit check services to check your own credit report, like Credit Karma, Borrowell, and Clear Score, can even do this.
Final Thoughts
In Canada, soft credit inquiries are a great way for someone to determine their credit score without damaging it. While hard inquiries have to be made to determine if you’re eligible for a loan and what interest rate and loan amount you get, soft inquiries will determine if a hard credit pull will need to be done or not.
Utility companies also use soft credit checks to determine whether or not a deposit is needed on your account. Phone companies also use soft credit checks to determine if you qualify for monthly payments or need to purchase your phone outright. Employers also check credit for some jobs, especially those in the financial and fintech industries, and a soft credit check is all that’s required. Soft vs. hard credit checks are very useful, especially since they don’t impact your credit score at all.
