How Credit Checks Work for Personal Loans in Canada

What Is a Credit Check?

A credit check is when a lender reviews your credit report and score from one or more Canadian credit bureaus (Equifax Canada and TransUnion Canada) to assess your creditworthiness.

Credit checks give lenders insight into your borrowing history, including how much debt you carry, whether you make payments on time, and how long you have been using credit. This information helps them decide whether to approve your loan and at what interest rate.

There are two types of credit checks: soft inquiries and hard inquiries. Understanding the difference is important because they affect your credit score differently.

Soft Credit Inquiries (Soft Pulls)

A soft credit inquiry is a check that does not affect your credit score. Soft pulls are used for prequalification, rate comparison, background checks, and when you check your own credit.

When you prequalify for a personal loan online, the lender performs a soft pull to give you an estimated rate and terms. This allows you to shop around and compare offers without any impact to your credit score.

In Canada, soft inquiries are only visible to you on your credit report—other lenders cannot see them.

• Used for prequalification and rate shopping
• Does not affect your credit score
• Only visible to you on your credit report
• Allows unlimited comparison shopping with no risk

Hard Credit Inquiries (Hard Pulls)

A hard credit inquiry occurs when you formally apply for credit and authorize the lender to pull your full credit report. Hard inquiries can temporarily lower your credit score by a few points.

In Canada, a single hard inquiry typically reduces your score by 5-10 points and remains on your credit report for 3 years (Equifax) or 6 years (TransUnion).

While a single hard inquiry has a minor impact, multiple hard inquiries in a short period can signal to lenders that you are desperately seeking credit, which may be viewed negatively. However, rate shopping within a focused window is an exception.

• Excessive hard inquiries over several months can significantly impact your score
• Each hard inquiry is visible to other lenders considering your applications
• Only authorize hard pulls when you are ready to formally apply

The Rate Shopping Window

In Canada, credit bureaus generally group multiple hard inquiries of the same type made within a 14-day window as a single inquiry. This allows you to apply to several lenders for rate comparison purposes without multiple hits to your score.

To take advantage of the rate shopping window, submit all your formal applications within a concentrated period—ideally within two weeks. This ensures the credit bureaus treat your applications as a single shopping event rather than multiple independent credit-seeking attempts.

What Lenders See on Your Credit Report

When a lender pulls your credit report, they see a comprehensive view of your credit history.

• Personal information (name, address, employment)
• Credit accounts (credit cards, loans, mortgages, lines of credit)
• Payment history (on-time payments, late payments, defaults)
• Account balances and credit utilization
• Public records (bankruptcies, consumer proposals, judgments)
• Previous credit inquiries
• Collections accounts reported to Equifax or TransUnion

How to Protect Your Credit Score

You can minimize the impact of credit checks on your score with these strategies.

• Start with prequalification (soft check) before formal applications
• Limit formal applications to a focused 14-day rate shopping window
• Do not apply for other types of credit simultaneously (e.g., credit cards, auto loans)
• Space out credit applications by at least 6 months when possible
• Monitor your credit report for unauthorized inquiries
• Dispute any unauthorized inquiries with Equifax Canada or TransUnion Canada