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Hard vs Soft credit checks and what it means to you

As we go about our day-to-day lives, many of us are not aware that our financial behaviour is monitored by the large consumer bureaus – Equifax, TransUnion and Experian – and from this bureau data, we each have what is known as a FICO score which is calculated and used by lenders, credit card issuers and other creditors.



Your FICO score, which typically ranges from 300 to 850 will likely affect your credit applications terms and rates.


FICO breaks it’s scoring criteria into five categories with a percentage given depending on importance and may vary for individuals depending on their history.


  • Payment History (35%) Paying your bills is one of the most important factors in determining your score and includes on-time and late payments as well as bankruptcy.

  • Amounts owned (30%) How much you owe on loans or credit cards, etc as well as how much credit you have remaining (Credit Utilization Rate) all add up to almost a third of your score.

  • Length of credit history (15%) Averaging the age of your oldest and newest accounts as well as frequency of use helps determine this portion of your score.

  • Credit mix (10%) Different types of accounts, such as credit cards, mortgages, loans, all factor into your score.

  • New credit (10%) New or recently opened accounts influence your score as well.


So, why are FICO scores so important?

FICO scores are widely used by most types of creditors, lenders, credit card issuers as well as insurance providers.


If your scores are high, they you are likely to get approved with great interest rates and terms, however if your score is low, they you could be denied or be approved with higher interest rates and less-advantageous terms.


Checking your own credit score is a great way to stay on top of your own financial history. Services such as Credit Karma allow consumers to make a ‘soft pull’ inquiry which won’t affect your FICO score – but allow you to know if you are improving your score and understanding decisions you make – that may affect your FICO.


A ‘hard’ inquiry is when a lender or company makes a request to review your credit report as part of a loan request, and as such will be recorded in your credit report and impact your credit score to some degree. Some hard inquiries, such as those for a mortgages, equipment loans or student loans are often treated as a single inquiry because it demonstrates financially responsible behaviour. However, generally speaking, large numbers of inquiries often equate a greater risk in a lender’s eyes.

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