How to Understand the Impact of CIBIL Enquiries on Your CIBIL Score
Your credit score is a crucial element of your loan approval process. Your credit score is calculated based on your repayment history, the credit utilization ratios and various other factors. Depending on your credit score, banks determine the cost of borrowing, the amount, and how flexible the loan terms can be.
Lenders need to check your CIBIL score online before they decide to approve or reject your loan application. However, if multiple inquiries are placed to pull your credit report, it can affect your credit score. Credit inquiries are of two types – hard inquiries and soft inquiries. Here’s a look at the two kinds of inquiries and their impact on your credit score.
- What is a Hard Inquiry?
Lenders pull your credit report to assess your credit behavior whenever you apply for credit. Your credit report gives a lender information about how you manage your finances over time. Inquiries on your credit score linked with your credit application are called hard inquiries for credit. Some common examples of hard inquiries are –
- Personal loan applications
- Home loan applications
- Student loan applications
- Credit card applications
- Auto loan applications
- What is a Soft Inquiry?
When you check your credit score or a lender checks your CIBIL score for a pre-approval – it is known as a soft inquiry. Sometimes, you may place a CIBIL inquiry to check for any inaccuracies or to check your overall financial performance. Soft inquiries do not impact your credit score, and they are also not reflected on your credit report. Some examples of soft inquiries are –
- Checking your credit scores
- Pre-qualified personal loan offers
- Pre-qualified credit card offers
Soft Inquiries vs. Hard Inquiries – What You Should Know
|Soft Inquiries||Hard Inquiries|
|Not registered in your credit report||Registered in your credit report|
|Whenever you apply for a loan, your prospective lenders will not know of any soft pulls that might have taken place in the past.||When you apply for credit, your prospective lenders will be informed about all the hard inquiries placed in the past.|
|Typically run by lenders on existing customers –e.g., to see if your credit limit can be increased||Lenders typically run them to evaluate your credit report before making a lending decision.|
|Banks do soft pulls to see if you qualify for select offers||Hard pulls occur when you send in your application for personal loans, car loans, or home loans|
|Soft inquiries are not detrimental to your credit health.||Even though stray hard pulls don’t bring down your credit score; repeated hard inquiries in a short time negatively impact your overall credit report.|
How do Hard Inquiries Impact Your Credit Scores?
Multiple hard inquiries in a short time can be detrimental to your credit health. An account with several hard inquiries leads creditors to think that you need new credit accounts to manage your finances. It can reflect poorly on your credit health and impress prospective lenders that you are not managing your finances well.
How do Soft Inquiries Impact Your Credit Scores?
While calculating your CIBIL score, soft inquiries are not taken into account. Soft inquiries do not impact your credit scores. Potential lenders do not see a record of the soft pulls in your credit report. And therefore, soft pulls of your credit report don’t count against you when you decide to apply for a loan.
The essence of the matter is that soft inquiries have no impact on your credit score. Soft inquiries happen even without your knowledge – such as if your bank wants to see if you qualify for a new offer or service. On the other hand, hard inquiries can negatively affect your CIBIL score. But not if they occur only once in a blue moon. Multiple hard inquiries in a short period label you as a credit-hungry customer who poses a high-risk as a debtor. Usually, lenders reject high-risk profiles or offer credit on higher interest rates to customers with multiple hard inquiries in the last six months.
A finance enthusiast, Mihika Ghosh, works as a Digital Content Creator at Fit.Credit, an all-in-one app that helps you check your credit score for free, stores your financial documents, and gives you timely payment reminders. She creates content that educates people on how they can improve their credit scores along with other investment and finance-related topics. When she is not working, she loves to travel and read to keep up with all things finance and economics.