Hard inquiries, soft inquiries, and what actually touches a credit file

This is the single most misunderstood part of applying for anything in Canada, and the confusion is profitable for people who are not us, which is a reason to set it out plainly.

The two kinds

A soft inquiry is a look at a credit file that does not affect the score. Checking your own report is soft. A lender pre-screening a marketing list is soft. An existing creditor reviewing an account you already hold is soft. Soft inquiries are recorded, but only you see them on your own report, and they are invisible to anyone assessing an application.

A hard inquiry is a look prompted by an application for credit, made with your authorisation. It is recorded on the file, it is visible to anyone who pulls the file afterwards, and it can affect the score.

The distinction is not about how thorough the look is. It is about why it happened.

How long a hard inquiry stays

Roughly three years on the Canadian bureaus, and its effect on the score fades well before it drops off. A single hard inquiry is a small factor on almost any file.

The thing that is not small is a cluster of them.

The cluster problem

Several hard inquiries in a short window read differently from one. To a lender, a file showing applications to a series of creditors over a few weeks says that credit is being sought urgently and repeatedly — which, whether or not it is true, is the inference the pattern supports.

This is where the structure of the vehicle financing industry does real damage to applicants.

A business that sells the same application to several dealers produces exactly this pattern. Each dealer that receives the file runs it with their own lenders. Each of those is a hard inquiry, authorised once, by an applicant who understood themselves to be making one application. Three weeks later the file carries a run of inquiries and the applicant does not know why.

Rate shopping and the same-window rule

The bureaus apply de-duplication logic to inquiries of the same type in a short window, so that shopping for one loan is not penalised as if it were several separate applications. The windows are not published precisely and the treatment differs between Equifax Canada and TransUnion Canada.

Two practical consequences:

1. If you are going to shop, compress it. Inquiries clustered in days are treated more favourably than the same number spread over two months.
2. Do not rely on the de-duplication to cover a scattered pattern. It is a mechanism for genuine rate shopping, not a general amnesty.

Which steps of an application involve which

Worth being specific about our own process, since that is the question people actually have.

Submitting an inquiry with Yes Auto does not trigger a hard credit pull on our end. However, once we match you with a dealer partner, that dealer or their lending institutions may perform a hard inquiry as part of the formal approval process.

In sequence: the application is submitted and goes automatically to one dealer partner. That dealer, and the lenders they work with, run their own assessment as part of the formal approval process — and that is where a hard inquiry arises. Consent to it is captured at the end of the application, separately from consent to be contacted, and unticked by default.

So the credit-file consequence of applying is not distributed across the process. It sits at one identifiable point, after a person has read the file and decided where it should go.

Checking your own file

Checking your own credit report is a soft inquiry and has no effect on the score. Both Equifax Canada and TransUnion Canada provide free access to your own report.

Do it before applying for anything significant. Not to improve it — there is nothing you can do in a week — but to know what is on it. The specific things worth looking for:

• Accounts you do not recognise
• Balances that are wrong, particularly on accounts you thought were closed
• A collection that was settled and still shows as outstanding
• Old addresses or employers that suggest a mixed file
• Anything reported after a bankruptcy discharge or a completed consumer proposal that should have been updated

Errors are common and correcting one takes weeks, so finding it before an application is worth more than finding it during one.

What a run of inquiries does not mean

It does not mean a file is finished. Inquiries are a factor, they are a small one individually, and they age off. An underwriter reading a file with several recent inquiries is asking why, and there are answers that are entirely reasonable — a genuine shopping period, a lead that got resold, a change of circumstances.

The file that is hard to assess is not the one with inquiries on it. It is the one where nobody can tell what happened.