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What is a hard inquiry or hard pull on my credit?
- Obtaining your own credit reports will not affect your credit scores
- A hard inquiry occurs when a lender or company makes a request to review your credit reports as part of the loan application process
- Multiple inquiries for the same type of loan, such as a mortgage, made within a certain period of time generally count as one inquiry
Some consumers are reluctant to check their credit reports because they are concerned that doing so may impact their credit scores. While pulling your own credit report does result in a “soft” inquiry on your credit reports, it will not affect your credit scores. In fact, knowing what information is in your credit reports and checking them regularly may help you get in the habit of monitoring your financial accounts.
One way to help establish smart credit behaviour is to understand how inquiries work and what counts as a “hard” inquiry on your credit reports.
What is a hard inquiry?
When a lender or company makes a request to review your credit reports as part of the loan application process, that request is recorded on your credit reports as a hard inquiry, and it usually will impact your credit scores. This is different from a “soft” inquiry, which can result when you check your own credit reports or when a promotional credit card offer is generated. Soft inquiries do not impact your credit scores.
Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit reports for up to 36 months. Depending on your unique credit history, they could indicate different things to different lenders.
Recent hard inquiries on your credit reports tell a lender that you were recently shopping for new credit. This may be meaningful to a potential lender when assessing your creditworthiness.
Exceptions to the impact on your credit scores
If you’re shopping for some types of loans, such as a mortgage loan, multiple inquires for the same purpose within a certain period of time are generally counted as one inquiry. The timeframes may vary, but range from 14 days to 45 days, depending on the credit scoring model being used. All inquiries will show on your credit reports, but generally only one within the specified period of time will impact your credit scores. This exception does not apply to credit cards.
Plan before shopping for a loan
Before shopping for a loan, it’s always smart to proactively plan your finances.
First, learn whether the type of credit you’re applying for can have its hard inquiries treated as a single inquiry. If so, determine the applicable timeframe. Then you can plan your shopping period accordingly.
Second, you may also want to check your credit reports before getting quotes to understand what information is reported. Find out how to request a free credit report from Equifax or Transunion.
If you’re worried about the effect that multiple hard inquiries may have on your credit reports, it may be tempting to accept an offer early rather than allow multiple hard inquiries on your credit. However, consider your individual situation carefully before cutting your shopping period short. In many cases, the impact hard inquiries have on your credit scores from shopping around will likely be minimal compared to the long-term benefits of finding a loan with a lower interest rate. The more informed you are about what happens when you apply for a loan, the better you can prepare for the process before you start shopping.
What is a credit score?
A credit score is an objective summary of the information contained in your credit report at a particular point in time. If you have any credit accounts, such as credit cards, mortgage or loans, you likely have a credit report. Your credit report is a record of how you manage your credit obligations. This data is then distilled and calculated to create your credit score. Your credit score is a number that lenders may use to help them decide whether or not to extend you credit. It represents the risk related to whether or not they can expect you to repay, according to the agreement you sign with them. Credit scores can give lenders a quick, objective and impartial snapshot of a credit file and are helpful in making approval decisions.
While the overall purpose of credit scores is universal, each lender will use his or her own criteria to measure an individual’s credit worthiness.
How is my credit score calculated?
The score is a three-digit number that lenders use to help them make decisions. Lenders use scores to determine whether or not to grant credit, and if so, how much credit and at what rate. A higher score indicates that the individual is a lower credit risk.To calculate a score, numerical weights are placed on different aspects of your credit file and a mathematical formula is used to arrive at a final credit score. TransUnion calculates your credit score based on many factors in your credit history and payment behaviour, including but not limited to
- Your track record for repaying your loans and credit card balances
- How much money you currently owe on your credit accounts
- How long your accounts have been open
- The different types of credit you use or credit mix
- How much credit you use compared to the amount of credit you have available
- How often, and how recently you have applied for credit
How you can improve your credit score
- Order a copy of your credit report annually, review it carefully and correct any significant errors:
- Pay your bills on time
- If you have a questionable credit history, you should open a few new accounts, use them responsibly, and pay them off on time
- Don’t open accounts then don’t use them. Having 6 or 7 of the same type of credit card does not work in your favour
- Have a credit card or instalment loan can help boost your score, so long as you don’t have a high balance
- Keep balances low in relation to the available credit. If the credit limit is say $10,000, keeping the balance below $2,500 (or 25% of the limit) will improve your score, balances over $7,500 (75% of the limit) will decrease the score. Going over the limit has an even more negative effect
- Order a copy of your credit report annually, review it carefully and correct any significant errors:
Pay off credit card debt instead of moving it around to lower rate cards. Moving balances to other credit cards and closing out the old account can hurt the score
While the overall purpose of credit scores is universal, each lender will use his or her own criteria to measure an individual’s credit worthiness. While the overall purpose of credit scores is universal, each lender will use his or her own criteria to measure an individual’s credit worthiness. It can be confusing when your score seems high but you are denied credit. Chances are you’re not looking at the same score as your bank or finance company or they had other contributing factors involved in their decision, such as previous history with the institution. Subscribers don’t always work with both credit reporting agencies in Canada, so the information included in one report might be slightly different from the other. Some lenders also use their own internal credit scores when evaluating an application. The only way to find out about how they measure your creditworthiness is to ask the individual lender.
Credit scores can give lenders a quick, objective and impartial snapshot of a credit file and are helpful in making approval decisions.
When you apply for credit, like a mortgage, car loan, a new credit card, apply for a job or want to rent an apartment, companies need a way to gauge your credit worthiness. Your credit report includes a record of your financial reliability.
Credit grantors and authorized institutions obtain credit reports about individual consumers. Consumers benefit through faster credit decisions.
What is a good score?
Typically, the higher the score the better. Each lender decides which credit score range it considers a good or poor credit risk. The lender is your best source of information about how your credit score relates to their final credit decision. Your credit score is only one component of the information that lenders use to evaluate credit risks.
What affects my credit score the most?
Your payment history is typically the most important aspect of your credit score. It shows how you’ve managed your finances. Your credit history is also very important, as it demonstrates how long you’ve been managing your accounts when you made your last payments and any recent charges.
What is my credit mix?
Your credit mix refers to the different types of credit you hold, such as credit cards, lines of credit, and mortgages. In addition to your credit mix, the number of accounts you have also influences your credit score.
Will I be penalized for shopping around for the best interest rate?
A common misconception is that every inquiry decreases your credit score. This is not true. While an inquiry is recorded on your personal credit report every time you, one of your creditors or a potential creditor obtains your credit report, the presence of inquiries has only a small impact on your credit score. Many types of inquiries (such as employment, collection, insurance, rental, your inquiry into your own file, and account review inquiries) have absolutely no impact. Most scoring models take appropriate steps to avoid lowering your score because of multiple inquiries that might occur as you shop for the best car or home loan terms.
Understanding Your Credit Score
Determining your score is more complicated than just weighing the different aspects of your credit history. The credit scoring process involves comparing your information to other borrowers that are similar to you. This process considers a tremendous amount of information, and the result is your three-digit credit score number.
Remember, no one has just one credit score, because financial institutions use several scoring methods. For some credit scores, the amount you owe might have a larger impact on your score than payment history.
View all of your credit reports annually to help ensure the information is accurate. You may also want to use a credit monitoring service year-round. TransUnion offers some of the latest and most innovative credit monitoring services, to help you spot inaccuracies, potential fraud, and other blemishes that could lead to higher interest rates.
Which personal details do not affect my credit score?
Your score is a representation of how you manage financial responsibility, not a testament to you as an individual. Things like age, ethnicity, religion, marital status, salary, occupation, and employer information are not factors in the calculation of your score.
How does an inquiry made by an insurance company impact my credit score?
It doesn’t. An inquiry made by an insurance company is considered a non-credit-related inquiry or “soft” inquiry.
How do I build a good credit history?
A credit reporting agency needs a track record of how you’ve managed credit before it can calculate a credit score. Typically, six months’ worth of activity will provide enough information to generate a score. Your score is dynamic and may rise or fall over time, based on how consistently and promptly you pay your bills. Establishing a good credit history takes time. Each creditor has different. requirements for issuing credit. If you are declined credit, contact the lender to determine the reasons why.
Start with a local store or a secured loan
If you have steady income and have used the same mailing address for at least one year, you may wish to apply for credit with a local business or department store, or for a secured loan or credit card through a financial institution. Paying credit obligations on time will help you develop a good credit history and may enable you to obtain additional credit in the future.
Consider a co-signer
If you have problems establishing credit, you may wish to ask a person with established credit to co-sign an application for you. This allows the creditor to base the decision on both of your credit histories. But remember, your co-signer is equally responsible for repayment of the debt. Both parties’ credit reports will reflect the payment history on this type of debt. Once you have proven that you are able to make timely payments, you may wish to apply for credit on your own.
How can I improve my credit score?
Several factors affect your credit score including payment history, amounts you owe, utilization of available credit, length of credit history, new credit and types of credit you use. Here are some tips on how to improve your credit score:
Pay all your bills on time. Late payments, collections and bankruptcies have the greatest negative effect on your credit score.
Check your credit report regularly
Take the necessary steps to remove inaccuracies – Don’t let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit report, contact the creditor associated with the account or the credit reporting agencies to correct it as soon as possible.
Watch your debt
Keep your account balances below 35% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the outstanding balance below $350.
Give yourself time
Time is one of the most significant factors to improve your credit score. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit file open to lengthen your period of active credit use.
Why is my credit rating different between Equifax and TransUnion?
You may find your credit reports have different FICO scores. While both reporting agencies have algorithms it depends on the information entered.
Each credit bureau may have different information about how you have used credit in the past.
Both Equifax and TransUnion will have different creditors reporting to them so it would be very rare that your credit score will be identical on both credit reports.
How do I get a free copy of my credit report?
Order a copy of your credit report from both Equifax Canada and TransUnion Canada. Equifax Canada refers to your credit report as “credit file disclosure”.
TransUnion Canada refers to your credit report as “consumer disclosure”.
Does ordering my own credit file affect my credit score?
NO. Ordering your own credit report has no effect on your credit score.
Order by mail or fax
- Make your request in writing using the forms provided by Equifax and TransUnion
- Provide copies of two pieces of acceptable identification, such as a driver’s licence or passport
- You must receive your credit report by mail
Order by telephone
- Call the credit bureau and follow the instructions
- Equifax Canada
- TransUnion Canada
Tel: 1-800-663-9980 (except Quebec)
Tel: 1-877-713-3393 (Quebec residents)
- Equifax Canada
- Confirm your identity by answering a series of personal and financial questions
- You may also need to provide your Social Insurance Number and/or a credit card number to confirm your identity
- You must receive your credit report by mail
How do I get my credit report online?
You may pay a fee to order your credit report online if you want to see it right away. TransUnion allows you to order your credit report online once a month for free.
Understanding your credit score
A lender will use your credit score to determine if they will lend you money and how much interest they will charge you to borrow it. Your credit score is a number calculated from the information in your credit report. It shows the risk you represent to a lender compared to other consumers.
Knowing your credit score before a major purchase, such as a car or a home, may help you to negotiate lower interest rates.
You usually need to pay a fee when you order your credit score online from the two credit bureaus.
Some companies offer to provide your credit score for free. Others may ask you to sign up for a paid service to see your score.
Always check to see if a website is secured before providing any of your personal information. A secured website will start with “https” instead of “http”.
What is credit monitoring?
Canada’s credit bureaus, as well as many credit card issuers and financial institutions, offer credit monitoring services. These services provide you with a notification after certain updates to your credit file, such as a credit inquiry.
You could consider using this service if you think you’ve been the victim of fraud or if you have been affected by a data breach. This can help you see if somebody is trying to apply for credit in your name.
You usually need to pay for these services.
How often should you check your credit report?
Consider requesting your report from one bureau, then wait six months before you order from the other bureau. By spacing out your requests, you may be able to detect problems sooner.
Source Financial Consumer Agency of Canada, Equifax Canada
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