How Long Do Hard Inquiries Stay on Your Credit Report in Canada?

Your credit report is a reflection of your financial history, and a crucial component of it is the record of credit inquiries. When you apply for a new line of credit—whether it’s a credit card, mortgage, or personal loan—the lender checks your credit, creating what’s known as a hard inquiry. While these inquiries are standard in the credit application process, many people wonder how long they stay on their credit report, and how they impact their credit score over time. In this guide, we’ll explore the ins and outs of hard inquiries in Canada, how long they last, and how they affect your credit score.

Understanding Hard Inquiries on Your Credit Report

To start, it’s important to distinguish between two types of inquiries: hard inquiries and soft inquiries. Knowing the difference between the two can help you better manage your credit and avoid unnecessary negative impacts on your score.

• Hard Inquiries: When a lender or financial institution checks your credit in connection with a credit application, this is a hard inquiry. Hard inquiries can affect your credit score because they suggest you’re actively seeking credit, which may indicate potential risk to lenders. Common examples include applications for credit cards, car loans, mortgages, and personal loans.
• Soft Inquiries: Soft inquiries, on the other hand, are credit checks that don’t affect your credit score. They may occur when you check your own credit, when a company checks your report for promotional offers, or as part of a background check by an employer. Soft inquiries are not visible to lenders, nor do they influence your credit score.

Understanding this distinction is crucial, as only hard inquiries have the potential to impact your credit score.

How Long Do Hard Inquiries Stay on Your Credit Report in Canada?

In Canada, hard inquiries remain on your credit report for three years. This duration is standard for both Equifax and TransUnion, the two major credit bureaus in Canada. However, while these inquiries are visible for a full three years, their actual impact on your credit score is usually temporary. Here’s a closer look at how hard inquiries affect your report over time:

• Immediate Impact: When a hard inquiry is first added to your report, you may see a small decrease in your score, typically by five to ten points. The extent of this impact depends on your overall credit history and the number of recent inquiries. For example, if you have a short credit history or multiple recent inquiries, the impact might be slightly higher.
• Reduced Impact Over Time: Hard inquiries lose their significance after the first few months. In fact, the scoring models used by Canada’s credit bureaus typically ignore inquiries after one year, meaning that the longer they sit on your report, the less influence they have on your score.
• Visibility for Three Years: While they only affect your score for about a year, hard inquiries remain visible to lenders for three years. This is because lenders may still consider your inquiry history to assess your credit-seeking behavior, which can indicate potential financial strain if there are numerous recent inquiries.

Why Hard Inquiries Affect Your Credit Score

Hard inquiries are designed to indicate whether an individual is actively seeking credit. Multiple inquiries in a short period can signal financial instability or an increased risk to lenders, as it may imply that the borrower is struggling financially or taking on more debt than they can handle. Here’s why hard inquiries can temporarily lower your score:

1. Risk Assessment: Each time you apply for credit, lenders view it as a signal that you may be taking on new debt. If you’re applying for multiple credit products in a short time, it could suggest that you’re struggling to secure financing, which may elevate your risk profile.
2. Impact on Credit History: For those with a shorter credit history, a single hard inquiry might have a slightly stronger impact than for someone with a longer history, as there’s less data for the credit bureaus to rely on.
3. Short-Term Nature of the Impact: Despite their temporary effect, hard inquiries add to your credit profile in a way that lenders can consider when making lending decisions. It’s worth noting that in moderation, hard inquiries won’t prevent you from being approved for credit. However, avoiding unnecessary inquiries can help you maintain a healthier score.

How Many Hard Inquiries Are Too Many?

While there isn’t a specific “hard limit” on the number of hard inquiries, multiple inquiries in a short timeframe can make lenders more cautious. For most borrowers, having one or two hard inquiries per year is unlikely to have a lasting impact on their score. However, several inquiries in a short period may be viewed as a potential red flag.

In some cases, credit bureaus recognize that certain types of inquiries occur within a brief window due to rate shopping. This commonly happens when you’re applying for a mortgage, car loan, or student loan and comparing offers. In such scenarios, multiple inquiries within a 14-45 day period may be treated as a single inquiry to avoid penalizing the borrower for shopping around.

Strategies to Minimize the Impact of Hard Inquiries

While it’s not always possible to avoid hard inquiries, there are ways to minimize their impact. Here are some strategies to consider:

Apply for Credit Only When Necessary

One of the best ways to avoid hard inquiries is to apply for credit only when it’s necessary. Each application results in a hard inquiry, so by being selective, you can minimize unnecessary inquiries and reduce the risk of negatively impacting your score.

Bundle Applications When Rate Shopping

When you’re shopping for a mortgage, car loan, or personal loan, try to complete all applications within a short window (ideally within 14 days). Most credit scoring models recognize rate shopping behavior and will treat multiple inquiries within a set period as a single inquiry.

Monitor Your Credit Regularly

Keeping an eye on your credit report can help you catch unauthorized hard inquiries early. Unauthorized inquiries can occur if someone applies for credit in your name, so staying vigilant allows you to dispute any inaccuracies promptly.

Check Pre-Approval Options

Many lenders offer pre-approval options that involve a soft inquiry, allowing you to check if you’re likely to qualify for a product without affecting your credit score. Pre-approvals can give you a sense of your eligibility, helping you avoid unnecessary hard inquiries.

Wait Before Applying for Additional Credit

If you’ve recently applied for credit, consider waiting a few months before applying again. Spacing out applications can help minimize the cumulative effect of multiple inquiries, allowing your score time to recover before your next application.

Checking Your Own Credit: Does It Affect Your Score?

A common misconception is that checking your own credit report or score can lower your credit score. This is not true. When you check your credit through a reputable source, such as Equifax, TransUnion, or a financial app, it’s considered a soft inquiry, which doesn’t impact your score. Regularly checking your credit can help you stay informed about your score, catch potential errors, and track your financial progress over time.

What to Do if You Have Unauthorized Hard Inquiries on Your Report

In some cases, you might notice hard inquiries on your report that you didn’t authorize. This can happen if your personal information has been compromised or if a lender made an error. Here’s what to do if you encounter unauthorized inquiries:

1. Contact the Credit Bureau: Notify Equifax or TransUnion of the unauthorized inquiry and provide any relevant documentation. They can investigate the claim and may remove the inquiry from your report if it’s found to be unauthorized.
2. Contact the Lender: Reach out to the lender that made the inquiry. If they can verify that the inquiry was a mistake, they may be able to have it removed.
3. Consider a Fraud Alert: If you suspect identity theft, placing a fraud alert on your credit file can help protect against future unauthorized inquiries. This alert notifies lenders to take extra steps to verify your identity before issuing credit.
4. File a Dispute: Both Equifax and TransUnion offer online dispute processes where you can report inaccuracies on your credit report. Disputes generally take about 30 days to resolve, during which time the bureau investigates your claim.

Managing Hard Inquiries for a Strong Credit Profile

Hard inquiries are a normal part of building and managing credit, especially when you’re applying for new credit products. While they remain on your report for three years in Canada, their impact on your score is usually short-lived, diminishing significantly after a year. By applying for credit strategically, bundling inquiries when rate shopping, and monitoring your credit report, you can minimize the impact of hard inquiries and maintain a strong credit profile.

Understanding how hard inquiries work is a powerful step toward taking control of your credit health. Armed with this knowledge, you can make informed decisions about applying for credit, ensuring that your score remains strong while you work toward your financial goals.