A credit score is like a track record of how well you manage your finances and debt. Whenever a company or an individual checks your credit score to examine your credit history, it affects your credit score. This thing you would have already known, but in fact, it is just a myth. A credit score check in Canada does impact the ratings, but it depends on what kind of check has been performed, i.e. soft check or hard check.
Checking your credit score does not lower it. You can check your credit score for free from various credit rating agencies available in Canada such as Borrowell, MOGO, etc. Though when a credit card company or a lender checks your score to check your creditworthiness before giving you credit, it can lower it. This article will help you understand elements that can affect your credit score, and how you can do a credit score check in Canada for free.
The Soft Credit Inquiry
Whenever you request your credit rating for your reference, this type of inquiry is termed as a soft inquiry. Despite the fact that these requests are logged into your credit history, they are solely visible to you and it does not impact your credit score.
The following statements can also be considered as soft inquiries:
- Whenever an organization performs a background investigation on a person’s credit score.
- Before a lender submits an individual’s application for credit, they review their profile for pre-qualification.
The Hard Credit Inquiry
Whenever a lender wants to accept an application for a credit card or grant a person’s loan, he/she analyses the applicant’s credit score. This type of inquiry is known as a hard inquiry. Before conducting a hard inquiry on a person’s credit report, lenders must have their permission.
Given below are some examples of applications where requesting for credit score results in a hard credit inquiry:
- Loans for students
- Loans for individuals
- Credit card applications
- Financing for a car
- Mortgage loans
Why Do Hard Inquiries Have an Impact on Your Credit Ratings?
Hard credit checks affect your credit score because they stay on your credit profile for some years. A hard pull can create a drop of 5 to 10 points in your credit score.
The consequence of a hard pull shall be small if there exist no underlying negative reasons affecting your credit record such as high credit use, late payments, etc. Though frequent hard credit inquiries in a short period of time may convey to the lenders that a person is in major financial problems, they can refuse to grant credit. For example, repeatedly applying for a loan, multiple credit card applications, and more. A person might not be eligible for low rates or they might be asked to give a security check.
If you are planning to get a mortgage loan, you can do it within a time period of 30 days; this will impact only a single inquiry on your credit score. Though, this will not be applicable to applicants for credit cards.
The Time Impact on Your Credit Score Due to Hard Pulls
Hard credit inquiries can stay up to three years or 36 months on your credit score report. Negative information, such as late payments and judicial decisions, can stay on your credit file for up to six years. Hard checks older than a year have less weightage on your credit rating compared to the recent ones.
What Affects Your Credit Score?
A hard inquiry is a single factor amongst many that influence your credit score. Here are some other factors that you should consider for a credit score check in Canada.
Credit history: Credit history highly influences one’s credit score. It records if a person has paid all the bills at the right time, if they have missed any payments, how much limit they have used, and overdue payments.
Credit utilization: Credit utilization can be termed as how much money you owe. An individual’s credit score is affected by the limit he has used from the total limit, i.e. using $40 out of a limit of $100 suggests that the credit utilization is 405. It’s best to maintain it under 30%.
Mixing of credits: If you can handle their credit accounts correctly, then having various credit accounts, like personal loans, credit cards, and mortgages, can help them improve your credit score.
Credit history length: There is a greater impact on the credit score if a person has a matured credit account. An old account depicts how an individual has handled their credit report over time to the lender.
Credit Score Check in Canada for Free!
Earlier, accessing your credit rating costs money for each request; but, now there are companies that provide it without any cost. Have a look at the following.
Borrowell: Borrowell provides access to an individual’s credit score, which is updated every week. A complimentary copy of your credit rating is also included. Borrowell provides Equifax credit rating and reviewing it wouldn’t affect your credit score.
MOGO: This credit bureau also offers a free Equifax credit rating. It is updated on a monthly basis.
Credit Karma: A person can benefit from this credit bureau by getting a TransUnion credit rating for free.
Due to variances in financial institutions’ algorithms, the credit rating you receive from different credit companies may differ slightly. You can also get your credit score from TransUnion and Equifax directly, but that will cost you $19.99 every month.
Most Commonly Asked Questions for Credit Score Check in Canada
What’s the best way to find out what your credit rating is?
There would certainly be deviations in your credit score depending on where you get it from. TransUnion and Equifax credit ratings differ due to variances in the patented software utilized by the two companies, along with the varying weightage given to different risk factors. Borrowell offers an Equifax credit rating for free. You can make use of Credit Karma to get a TransUnion credit rating for free.
Does the credit rating drop down whenever you check your credit score?
Your credit score drops down temporarily by some points whenever a creditor requests for hard credit inquiry on your report. This informs other creditors that they are looking for credit and maybe a borrower with higher risk. Multiple hard pulls in a short span of time can make it hard to get affordable offers.
Credit requests drop your credit rating by how many points?
Normally, not over five to ten points. It could possibly be little if a person has a good credit history. This is only a temporary drop, and if a person uses their credits wisely, then the score will recover quickly.
The Bottom Line
It is not harmful to monitor your credit report because it gives you detail on where you stand financially. Though ensure that you have a track on your reports and block it if needed to avoid credit companies to access them. A credit score check in Canada on a regular basis can also help you to identify any errors and contact the credit agencies to resolve the same. You can also keep a tab on any frauds or theft under your name. All in all, there are many benefits to credit score check in Canada, and you should do it at least once a year to know and improve your credit score.