Can credit checks cramp your credit rating?
Many companies perform credit checks on consumers when they sign up for a service but the impact that check has on your credit score depends on how they do it.
CTV Calgary Consumer Specialist Lea Williams-Doherty took a look at soft and hard credit checks and how they impact credit score and says there is a big difference.
Josh Hynes recently opened an account with Enmax and asked whether the credit check would be "hard" or "soft."
While the information is identical, it is recorded differently by credit bureaus like Equifax and TransUnion.
Soft checks have no impact on your credit score but hard checks usually reduce it.
“They proceeded to tell me it was a soft pull and that it wouldn't affect my score in a negative way," said Hynes.
Hynes later checked his rating and says two days after Enmax's inquiry, Equifax took ten points off his credit score and his risk category dropped to "good" from "very good."
He says he called Enmax and they blamed Equifax.
“Then Equifax proceeded to tell me it's Enmax's issue, that's how they're set up, they're set up that way to do a hard pull,” said Hynes.
Lea posed as a new customer and called Enmax to ask which kind of credit check they do.
She was told that they do a soft pull and that they only use the customer’s name and address.
Lea then asked the same question of Enmax’s head office.
In an email, the company said “it is our understanding that when we make such an inquiry, in isolation, it should not make a significant impact to a customer's credit rating.”
The Financial Consumer Agency of Canada says consumers should try to limit hard hits.
"The consumer might not be approved for credit, they might have to pay more to borrow money, if they're looking to rent housing they could be turned down. Similarly if it's a potential employer it could affect the decision they make about the candidate,” said Michael Olson from the Financial Consumer Agency of Canada.
Experts say the impact is lasting.
“Equifax keeps inquiries on your credit file for at least three years. TransUnion keeps it for at least six years,” said Olson.
Since the information creditors get is the same in a hard and soft check, why label some as hard when it can hurt a consumer’s credit ratings?
Lea says credit scores are created to help gauge whether a person is a good credit risk.
Experts say that if you're applying for a lot of credit you could be in financial trouble so the bureaus choose to list creditor’s inquiries about your history as hard hits.
Lea says one hard hit typically won't make a big difference and if you are applying for a credit card, mortgage or car loan you can expect it but most people don’t expect the same from utilities or cell phone companies.
Direct Energy told Lea that it does hard credit checks on new customers. She also checked with Just Energy but didn't they didn’t respond.
Lea says that not just anyone can pull your credit reports and that consumers have to give consent and must pass the credit bureau's application process.
(With files from Lea Williams-Doherty)