Understanding inquiries on your credit report

Your credit report and score determine whether you qualify for many credit products, like credit cards, lines of credit, mortgages, and loans. When you apply for a new credit, the lender typically asks for a hard inquiry into your credit report. You'll also see new inquiries pop up on your credit report whenever you check your score.

Credit report inquiries may seem daunting. How much of your personal or financial information can lenders and creditors see when they check your credit score? Can hard credit inquiries impact your score? Knowing your credit score keeps track of your financial well-being, assesses your creditworthiness, and preapproves you for offers.

There are two types of inquiries into your credit report - hard inquiries and soft inquiries. You'll likely receive several credit inquiries throughout your life, and knowing the differences can help you understand your financial situation and the decisions of lenders better. We talk about a hard credit check vs. a soft credit check, when they happen, and how to react to them.

What is a credit inquiry?

A credit inquiry is a request for your credit report from a credit bureau. Financial institutions, private lenders, mortgage brokers, and other creditors typically request a hard credit inquiry to assess your creditworthiness and determine whether to approve you for a new credit account. Some employers, landlords, and other companies may also check your credit report to determine whether you meet their requirements for employment, housing, and other goods and services.

You can also conduct a credit check on yourself to monitor your credit score and financial information. Checking your own credit report is a good idea to ensure your score is improving over time, and you're implementing the recommended tips to be on the right track. The two types of credit checks that can occur are hard inquiries and soft inquiries.

How do credit inquiries work?

Credit inquiries occur when someone or a company wants to pull your credit report. The requester can factors that affect your credit score in Canada, like your payment history, total debts owed, credit limits, past bankruptcies, and your credit history. They'll also see your personal information, like date of birth, name, and address.

You can inquire into your credit report, or lenders and financial institutions can submit a credit inquiry for various reasons. For example, they'll use your credit report and score to assess your credit risk for an auto loan or when you apply for a mortgage.

Hard vs. soft inquiries

There are two types of credit inquiries - hard credit inquiries and soft credit inquiries. Both inquiries look at borrowers' credit reports and contain the same information, but have different purposes and effects on credit reports.

Hard inquiry

A hard inquiry occurs when lenders check your credit report before approving or declining your credit application. For example, when you apply for a new credit card, the credit card company will likely make a hard inquiry into your credit report to review your payment and credit history before approving you for the card. A hard credit inquiry may also be part of a background check for a new job.

A lender can conduct a hard inquiry using your social insurance number to get a full credit report and conduct a detailed assessment for their underwriting process.

Hard inquiries show up on your credit report and can have a negative impact on your credit score. Multiple inquiries in a short period signal you want to increase your available credit significantly, which creates a higher risk for lenders to give you more credit. A hard inquiry can stay on your credit report for up to two years. Credit repair companies can sometimes remove hard inquiries from your credit report.

Soft inquiry

While it can show up on your credit report, a soft credit check doesn't affect your credit score. Lenders can use soft inquiries to screen and preapprove you for offers, like a credit limit increase, a line of credit, or a promotional credit card offer.

You can also conduct soft credit inquiries on yourself to get a copy of your most recent credit report and credit score. Credit reporting and monitoring services may also use a soft credit inquiry to help you find the best loans and interest rates based on your information.

Does a credit inquiry hurt your score?

It depends on the type of credit inquiry. Hard inquiries on your credit can cause your credit score to drop temporarily. Soft inquiries don't impact credit scores but can appear on credit reports. Your credit score can change monthly for various reasons, such as a hard credit inquiry, using too much credit, missed or late payments, or carrying an outstanding balance. Even if your credit score drops because of a hard inquiry, you can practice good credit management skills to improve your score over time.

How to limit the impact of credit inquiries

Limiting the number of hard credit checks is a great way to ensure your credit score doesn't drop too much. Multiple hard inquiries harm your credit score and increase your credit risk with lenders. Before applying for more credit, consider your existing credit and determine whether you need a new account. There are several alternatives to applying for credit, such as using a savings account or cash.

Exceptions to the impact on your credit score

There are exceptions in some cases when it comes to hard credit inquiries and your credit score. When you're shopping around for certain loans, multiple hard inquiries for the same purpose within a specific period are typically treated as a single inquiry. For example, if you have multiple inquiries on your credit report for a mortgage loan within two weeks may be treated as a single hard inquiry. The range depends on the credit scoring model.

Plan ahead

Before applying for a loan, shop around and plan to get an idea of what type of loan you need, whether you'll have a soft or hard inquiry, and how much you need to borrow. You can get a soft credit check to review your credit report and assess what type of loans you have a better chance of approval. Individuals with higher credit scores typically have more choices when it comes to loans, credit limits, interest rates, and payment plans. Planning can also avoid multiple hard inquiries and harming your credit score significantly.

Get a free credit report from KOHO

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Good credit takes time and discipline to build with healthy credit management habits. You can start your credit building journey or repair bad credit with a virtual credit card. With no credit checks or wait times, you can spend instantly to build your payment and credit history, even if you don't have a credit score. Keep your spending in check with overdraft protection coverage to borrow money interest-free if you exceed your credit limit in unexpected situations.

Find out how KOHO can support every step of your credit journey so you have access to more financial products and reach your goals faster.