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In most cases, one or two credit inquiries done within a few months should not be an issue. Too many credit inquiries done within a short period might cause some worries for the lenders and even affect your CIBIL score. Credit inquiries are usually done by the lender every time you apply for a loan or credit card to learn about your credit habits and estimate risks.
There are two main types of credit inquiries: hard inquiries and soft inquiries. The former type is done when you apply for credit, while the latter one is made for informational purposes only, for example, when you check your credit report. While hard inquiries affect your credit score, soft inquiries do not have any influence.
To know how credit inquiries work allows you to handle your credit profile better, increases chances of getting a loan approved, and helps you keep your credit score good. The types of credit inquiries, their effect on your CIBIL score, and their duration on your credit report will be discussed in the next paragraphs.
A credit enquiry refers to a situation where the lender, bank, or any individual asks for access to a person’s credit report. Such credit enquiries assist banks, non-banking financial institutions, and credit card providers to know about the borrower’s history, payment habits, amount owed, and creditworthiness before providing the loan or credit card facility.
Credit enquiries are mainly classified into two types, which are hard credit enquiries and soft credit enquiries.
Hard credit enquiries refer to a situation where you actively ask for new credit. This mostly happens when you:
Banks consider your credit history in order to judge the risks in providing the loan. Since having many credit inquiries in a short time may be seen as a sign of financial pressure, a hard credit enquiry may negatively impact your credit score.
The other type of inquiry that can be made on an individual’s credit report is called a soft inquiry. This is made for information or verification purposes, and examples include:
Soft inquiries have no relation to applying for credit and thus will not affect your credit score.
Knowledge about these different types of inquiries can help you manage your credit profile better.
Credit inquiries are important in determining your CIBIL score since they help lenders know more about your borrowing behaviour. Each time you make an application for a loan or a credit card, the lender will make a hard inquiry of your credit information. Though each enquiry doesn’t carry much weight, too many inquiries made in quick succession can be a problem.
The following are ways through which credit enquiries may affect your credit report:
Lenders do not just base their decisions on your enquiry history; they also factor in many other things like:
For example, making applications for a number of credit cards might cause lenders to think that you are trying to get more credit fast. Just like that, making multiple applications for a personal loan from different banks within a few months can adversely impact your credit record.
Your credit score performance and the process of applying for loans go hand-in-hand since lenders want to gauge the financial security of the borrower and how capable he or she is of paying back his or her debt obligations. It can help to keep your credit score good and avoid unnecessary applications.
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Records of credit inquiries make up a substantial part of your complete credit profile since they provide lenders with information regarding your borrowing habits. It should be mentioned that one or two inquiries in a reasonable period of time will hardly affect your credit score in a substantial manner. But numerous applications submitted during a relatively short time may give a false impression that you depend too much on borrowed money.
There are some instances when you need to pay more attention to your credit report, such as:
By examining your CIBIL report on a regular basis, you can find any mistakes made on your report. This will also enable you to check what changes have been made to your credit profile. You must report it if you come across any unauthorised enquiry.
Credit inquiries are a regular part of the lending process, but making frequent credit applications will definitely affect your CIBIL score and ability to access loans. By maintaining a good credit profile, making limited credit applications, and checking your credit reports, you can definitely make sure that you secure credit in favourable conditions.
1. Will monitoring my credit score help me in boosting my CIBIL score?
When you monitor your credit score, it will not increase your CIBIL score. But it is useful in finding out any mistakes and maintaining proper repayment behaviour.
2. Will a loan application being rejected make an impact on my credit report?
Though the rejected loan application does not make its way into your credit report, the hard inquiry made by the lending agency makes an appearance.
3. Does refinancing of a loan lead to a credit inquiry?
Yes, if you have applied for loan refinancing or balance transfer, then there will be a hard inquiry from the lending agency regarding your credit score.
4. Are joint applications considered by lenders for both parties?
Yes, the lending agency considers the credit score of all those who have applied for the loan jointly. Hence, the hard inquiry will reflect in the credit report of both of them.
5. Is it possible that closing my old credit card would wipe out the past credit inquiries?
No, the closure of my credit card will not make all previous credit inquiries disappear since they are recorded by the credit bureaus for a specified period.
6. Does it mean that the credit bureaus have identical records of the inquiries?
Most credit bureaus tend to have almost identical records, although slight differences might arise due to the lenders reporting at varying intervals. This is the reason why scores may differ among the credit bureaus.
7. Would multiple applications for buy-now pay-later (BNPL) services affect my creditworthiness?
Yes, some BNPL companies can perform hard inquiries before issuing me a loan. Frequent applications within a short period of time can impact the way lenders perceive me as a borrower.
8. Is it possible that lenders will have access to my entire banking history in case of a credit inquiry?
No, in most cases, the credit inquiry will only include my credit report with repayment history and existing debts, among others.
9. What should I do before applying for a new loan or credit card?
Review your credit report, pay off existing debts, and ensure that all previous payments have been paid on time. This will improve your credit profile and make it more likely that your application is approved.
10. Is it possible that unauthorised credit inquiries may be the result of identity theft?
Yes, criminals may try to apply for credit with stolen personal data, and this may manifest itself in inquiries that you do not recognise on your report.
