Credit Enquiries and Their Impact on Your CIBIL (Credit) Score

Whenever an individual wants to acquire credit facilities in the form of a mortgage loan or a credit card, the lender, or creditor that they approach will assess their credibility.

Credit Enquiries and Their Impact on Your CIBIL (Credit) Score
Credit Inquiry

Whenever an individual wants to acquire credit facilities in the form of a mortgage loan or a credit card, the lender or creditor that they approach will assess their credibility. For this purpose, they generally approach a credit bureau to check the person’s credit report. This inquiry gets noted in the person’s credit history. The inquiry can be of two types – hard and soft. 

What is a Hard Inquiry?

When you apply for a loan or a credit card from a financial institution, the institution usually ‘pulls’ your credit report from a well-reputed credit bureau. Such an inquiry can typically occur only when you authorise a particular institution to pull out your inquiry. 

A hard inquiry can lower your credit score y a few points and will typically reflect on your profile for two years. But this brings us to the question of what happens when you are rate shopping for a loan from multiple institutions. Don’t worry. This mechanism should not stop you from shopping for the best rates for your loan. Because if you approach multiple creditors for a the same loan with the same time frame, then all the inquiries received within a period of certain days are considered as just one hard inquiry by CIBIL or any other bureau. They estimate that you are assessing different rates.

However, be cautious about applying for many credit cards frequently, because these will depict you as a risky lender or a person who is going gather higher debt in the near future. 

Example of Hard Inquiries on Your Credit Report

  • Applying for a credit card 
  • Applying for a mortgage loan
  • Applying for a business loan
  • Applying for other services
  • Requesting a credit limit increase

What is a Soft Inquiry?

Soft inquiries, on the other hand are when you or someone else checks your credit report without your explicit permission. For example, you give a job interview and your prospective employer would like to enquire about your financial position and stability as a background check. Then he would approach a credit bureau to ascertain your credibility, without your approval. Such a query is known as a soft pull or soft inquiry. 

These inquiries generally do not reflect on your credit report. 

When You Can Expect Soft Inquiries on Your Credit Report

  • When you check your own credit score
  • When banks or financial institutions check your credit score and offer you ‘pre-qualified’ credit cards
  • When banks or financial institutions check your credit score and offer you ‘pre-qualified’ loans
  • When insurance companies check your credit score and offer you ‘pre-qualified’ insurance offers
  • When an employer checks your score as part of the background check before making an official job offer to you

How to Dispute Hard Credit Inquiries

It is essential that you regularly check your own credit score and the CIBIL report. As mentioned earlier, checking your own credit score amounts to a soft inquiry and does not reflect in your credit report. The necessity arises because sometimes it is possible that an unapproved hard inquiry appears on your credit report. 

In such a situation, you will need to approach the credit bureau and dispute the inquiry. Because otherwise, the inquiry will reflect on your report and stay there for two years. However, you can also check your score with other bureaus to see if this is an error.