Does Checking Your Credit Score Hurt It in Canada?

Understanding your credit score is crucial in managing personal finances, especially when planning for significant expenses like a home mortgage, auto loan, or new credit card. A common question that arises is whether checking your credit score can actually harm it. In Canada, the impact of checking your credit score largely depends on the type of check being performed—what we call a soft inquiry or a hard inquiry. In this article, we’ll dive deep into the differences, examine how these checks affect your credit score, and explain the best practices for managing your score responsibly.

What Is a Credit Check?

A credit check is a process where a financial institution, employer, or individual reviews your credit report. This report, which includes your credit score, gives insight into your borrowing history, repayment habits, and overall creditworthiness. It’s a tool that helps lenders assess the level of risk associated with lending money to you.

Credit Bureaus in Canada

In Canada, two primary credit bureaus—Equifax and TransUnion—compile and maintain your credit history, gathering data from creditors like banks, mortgage companies, and utility companies. These bureaus assign a credit score based on a set of factors, including payment history, credit utilization, length of credit history, types of credit used, and recent inquiries. This score falls between 300 and 900, with scores above 700 generally considered good or excellent.

Types of Credit Checks: Hard vs. Soft Inquiries

One of the most important aspects of understanding how credit checks impact your score is knowing the difference between hard and soft inquiries.

Soft Inquiries

A soft inquiry, also known as a soft pull, is a credit check that does not affect your credit score. Soft inquiries typically occur when you check your own credit score, when a lender pre-approves you for a loan or credit card, or when a background check is conducted, such as for employment or rental purposes. Soft inquiries are visible to you on your credit report but not to lenders, meaning they have no bearing on your creditworthiness in the eyes of creditors.

Examples of Soft Inquiries:

• Checking your own credit score through an online platform
• Pre-qualification checks for loans or credit cards
• Background checks by potential employers
• Existing lenders conducting periodic reviews

Hard Inquiries

A hard inquiry, or hard pull, happens when a lender performs a credit check as part of a formal credit application process. This type of inquiry is recorded on your credit report and can slightly reduce your score, especially if you accumulate multiple hard inquiries in a short period. Hard inquiries signal to lenders that you are actively seeking credit, which can be perceived as a higher risk if done frequently.

Examples of Hard Inquiries:

• Applying for a credit card
• Submitting a mortgage application
• Applying for an auto loan or personal loan
• Opening a new utility account that requires a credit check

How Do Hard Inquiries Affect Your Credit Score?

The impact of a hard inquiry on your credit score is typically small—usually around 5 points or less. However, the cumulative effect of multiple hard inquiries within a short time can be more substantial. This is because credit scoring models, like those used by Equifax and TransUnion, view frequent applications for credit as a potential sign of financial distress or overextension.

When Do Hard Inquiries Have Minimal Impact?

If you’re shopping around for the best interest rates on a mortgage, auto loan, or student loan, multiple hard inquiries within a short time (usually 14-45 days) are often counted as a single inquiry for credit scoring purposes. This window allows consumers to compare rates without fearing multiple impacts on their credit score. However, this benefit does not typically apply to credit card applications, as each card application is generally treated as a separate inquiry.

How Long Do Hard Inquiries Stay on Your Credit Report?

In Canada, hard inquiries remain on your credit report for up to three years; however, they only affect your score for about 12 months. After this period, while the inquiry is still visible, it no longer impacts your score. This means that over time, the effect of a hard inquiry naturally diminishes, especially if you continue to manage credit responsibly.

Why Checking Your Own Credit Score Does Not Hurt It

Many Canadians are hesitant to check their credit score, fearing it could harm their score. However, as we mentioned earlier, checking your own score is considered a soft inquiry. This means it has no impact on your credit score, regardless of how frequently you check it.

Regularly monitoring your credit score is, in fact, a good practice. Keeping an eye on your score allows you to catch potential errors on your report, identify identity theft early, and track your financial progress. Numerous online platforms now allow Canadians to check their credit score for free, including Borrowell, Credit Karma, and even some banks like RBC and CIBC.

Benefits of Regularly Checking Your Credit Score

Regularly checking your credit score can offer several advantages, especially if you’re working toward financial goals or want to improve your creditworthiness.

Tracking Your Financial Health

Your credit score serves as a reflection of your overall financial health. By checking it regularly, you can gauge how lenders view your credit behavior and determine whether you need to make adjustments.

Catching Errors on Your Credit Report

Mistakes can happen on credit reports, and these errors can negatively impact your score. By checking your credit report often, you have the chance to identify inaccuracies—such as duplicate accounts or incorrect balances—and dispute them with the credit bureau.

Monitoring for Identity Theft

If someone fraudulently opens a credit account in your name, it could damage your credit score significantly. Regularly reviewing your credit report allows you to spot suspicious activity and take action before it affects your score.

Staying Prepared for Major Financial Decisions

If you plan to apply for a mortgage, car loan, or credit card, it’s wise to check your credit score in advance. This helps you understand where you stand and gives you time to make improvements if needed. Lenders look for stable credit histories, so being proactive about your score can make the difference in securing better interest rates.

Best Practices for Managing Credit Checks and Your Credit Score

Here are some practical strategies for balancing credit inquiries and maintaining a strong credit profile:

1. Limit New Credit Applications: Only apply for credit when necessary, as each hard inquiry can reduce your score slightly. Space out applications to allow your score time to recover.
2. Use Rate Shopping Windows Wisely: If you’re looking for a mortgage, auto loan, or student loan, complete all applications within a short period (14-45 days), so they count as a single inquiry on your report.
3. Regularly Check Your Own Credit Score: As checking your own score is a soft inquiry, doing it frequently will not affect your credit. Use free resources to monitor your score and stay aware of your financial standing.
4. Dispute Any Inaccuracies: If you notice errors on your credit report, contact Equifax or TransUnion to have them corrected. Errors can unnecessarily lower your score, so addressing them promptly is essential.
5. Pay Off Balances and Avoid Maxing Out Credit: Keep your credit utilization rate low by paying down balances regularly and not maxing out your available credit.

Common Questions About Credit Score Checks in Canada

Does Checking My Credit Score Online Lower It?

No, checking your score online is a soft inquiry and has no impact on your credit score. Free services from institutions like Credit Karma, Borrowell, and even certain banks allow you to check your score without affecting it.

Why Does a Lender’s Credit Check Hurt My Score?

When a lender checks your credit as part of a loan or credit application, it’s a hard inquiry. Multiple hard inquiries in a short period may indicate to lenders that you’re seeking a lot of credit, which they view as higher-risk behavior.

Will Multiple Soft Inquiries Affect My Credit Score?

No, multiple soft inquiries do not impact your credit score, as they are not factored into your credit report the way hard inquiries are. Whether you check your score monthly or quarterly, it will not harm your credit.

How Can I Improve My Credit After Multiple Hard Inquiries?

If your score has been affected by multiple hard inquiries, you can improve it by focusing on positive credit habits: making on-time payments, keeping your credit utilization low, and limiting new applications. Over time, the impact of hard inquiries will fade, and positive behavior will contribute to score improvement.

Monitoring Your Credit Without Fear

Understanding how credit inquiries impact your score empowers you to manage your credit responsibly. Checking your own credit score is a healthy financial habit that allows you to stay informed, catch potential errors, and maintain control over your financial future. With free resources available in Canada, there’s no reason to avoid regularly reviewing your credit score. Remember, it’s not the act of checking your score that matters but rather how you use this information to make informed financial decisions.