As we all know, credit scores play a significant role in one’s financial life. It can affect one’s ability to get loans, credit cards, or even an apartment. A low credit score can lead to higher interest rates, which can cost you more money in the long run. So, it is essential to know what factors can affect your credit score, and one such factor is checking your credit score. In this article, we will answer the question, “Does checking credit scores lower in Canada?”
Table of Contents
- Understanding Credit Scores
- How Credit Scores are Calculated in Canada
- Types of Credit Inquiries
- Soft Credit Inquiries
- Hard Credit Inquiries
- Does Checking Your Credit Score Lower It?
- How Often Should You Check Your Credit Score?
- How to Check Your Credit Score in Canada
- Factors That Can Affect Your Credit Score
- Importance of a Good Credit Score
- How to Improve Your Credit Score
- Tips to Maintain a Good Credit Score
- Common Myths About Credit Scores
- Conclusion
- FAQs
Understanding Credit Scores
A credit score is a three-digit number that represents a person’s creditworthiness. It ranges from 300 to 900, with 900 being the best credit score. The credit score is calculated based on several factors, including credit history, payment history, credit utilization ratio, and credit inquiries. A credit score is a reflection of a person’s financial history and behavior, and it is used by lenders to determine their creditworthiness.
How Credit Scores are Calculated in Canada
In Canada, credit scores are calculated by two credit bureaus, Equifax and TransUnion. Both of these credit bureaus use different credit score models, but the factors that influence credit scores remain the same. The credit score is calculated based on five main factors:
- Payment history (35%)
- Credit utilization ratio (30%)
- Length of credit history (15%)
- Credit mix (10%)
- New credit (10%)
Types of Credit Inquiries
Credit inquiries are divided into two types – soft credit inquiries and hard credit inquiries.
Soft Credit Inquiries
Soft credit inquiries are credit checks that do not affect your credit score. These inquiries are usually conducted by individuals or companies who are not looking to lend you money. Examples of soft credit inquiries include when you check your credit score yourself, when a potential employer checks your credit score, or when a credit card company pre-approves you for a credit card.
Hard Credit Inquiries
Hard credit inquiries are the credit checks that can affect your credit score. These inquiries are usually conducted by lenders or financial institutions when you apply for a loan, credit card, or mortgage. Hard credit inquiries stay on your credit report for two years and can lower your credit score by a few points.
Does Checking Your Credit Score Lower It?
No, checking your credit score does not lower it. As mentioned earlier, soft credit inquiries do not affect your credit score. So, if you are checking your credit score yourself or if a potential employer is checking your credit score, it will not affect your credit score. However, if you apply for a loan or credit card and the lender conducts a hard credit inquiry, it can lower your credit score by a few points.
How Often Should You Check Your Credit Score?
It is recommended that you check your credit score at least once a year to make sure that the information on your credit report is accurate. You can also check your credit score more often if you are planning to apply for a loan or credit card. By checking your credit score, you can ensure that there are no errors or fraudulent activities on your credit report.