Are you thinking about requesting a personal loan? You’re in good company.
Research shows that more than 19 million Canadian consumers—more than 65%—have received personal loans.
But what if your prospective lender wants to run a soft credit check on you?
The good news is that soft inquiries on your credit report won’t affect your credit score like hard inquiries. Let’s explore soft inquiries.
What Are Soft Inquiries?
Soft inquiries are credit checks that you or potential lenders may initiate even if you aren’t applying for credit.
Lenders may run soft inquiries when screening consumers for background checks or preapproved financing offers. However, these checks won’t impact your credit score—a number that indicates your creditworthiness to lenders. Creditors look at this number to see if you’re reliable enough to extend a loan or credit to.
How a Soft Credit Pull Works
The creditors and financial institutions you wish to work with would like to know how well you’re managing your existing debt. They’re also interested in your credit history.
For instance, they might want to find out how much you’ve borrowed on loans and credit cards. They may also want to see if you’ve ever made a late payment.
Soft inquiries, or soft pulls, allow creditors to look at your credit score and report to see how well you’re handling your credit. This score will tell them how risky or safe you are to lend to.
Soft pulls may also happen if potential employers decide to check your credit. They may do this if you are being hired to fill a sensitive role, like one where you will control the business’s finances.
In addition, credit card businesses may perform soft credit checks before sending preapproval offers to consumers.
A mortgage company may likewise perform a soft pull when you apply to get preapproved for a mortgage.
Soft Credit Inquiry Versus Hard Credit Inquiry
As we mentioned earlier, soft credit inquiries won’t affect your score, while hard credit checks do. Aside from this, the main difference between the two is that lenders usually run soft credit checks for preapprovals, while hard credit checks happen when people apply for home or auto loans, as well as credit cards.
Hard pulls may impact consumers’ credit scores for several months. In addition, they might remain on their credit reports for two years.
Note that your credit score might drop five points each time you pursue a loan requiring a hard pull.
Today’s credit bureaus in Canada factor these types of inquiries into Canadians’ credit scores because people who apply for extra credit may be more likely not to pay back their existing debts. These credit bureaus are as follows:
- Equifax Canada
- TransUnion Canada
- Dun & Bradstreet
However, soft pulls aren’t formal credit applications. That’s why they’re not included in the credit bureaus’ calculations of consumers’ credit scores.
Additional Soft Credit Check Benefits
Along with not harming your credit score, soft credit checks can increase your understanding of your creditworthiness. They can also help you understand how credit scores are reported to different credit bureaus.
If possible, take advantage of the free credit scores and reports available through credit card companies. Consumers can also ask for free copies of their credit reports every year from Canada’s credit bureaus.
These credit reports list soft inquiries, so you can find out which companies have considered extending credit to you. You’ll see both the name of the requester and the date of their inquiry on the credit report.
Is There a Such Thing as Too Many Credit Pulls?
Yes, you can have too many credit pulls. That’s because they show lending institutions that you’re in need financially, which makes you appear risky. Consumers who have at least six credit pulls are more prone to declaring bankruptcy.
A credit reporting agency usually counts multiple hard inquiries run within a brief period as a single event. This is great news if you’re applying for several personal loans or several mortgages within two weeks, for example. You don’t have to worry about your credit score being harmed every time you apply.
Still, if your credit report constantly features hard inquiries as well as a low score, loan servicers, and credit card issuers may view you as risky.
Fortunately, if your credit score is good, the impacts of hard inquiries might be minimal. This is especially true if you have been maintaining low credit card balances.
But what if your credit score is poor? And what if you have high unpaid credit card or loan balances? Hard inquiries might further lower your credit score and lead to credit application rejections.
To decrease the negative impact of hard credit inquiries, try to lower your existing debt first. This will help you to increase your score before you apply for more credit.
How We Can Help You to Get a Personal Loan
Soft inquiries are credit pulls that won’t impact your credit score. A personal lender may perform a soft credit check to determine if you’re not too risky to lend money to. Likewise, potential employers may check your credit score before hiring you.
At Kingcash, we take pride in offering Canadians an easy, convenient, and fast alternative to traditional loans from financial institutions. You can even get a loan the same day without a credit check.
Get in touch with us to learn more about our lending solutions, and get your loan now!