Effect on CIBIL scores after enquiries

There are many possibilities that your credit score will impact. Understanding what factors influence your score is crucial for maintaining a healthy credit profile. You have a question in your mind: what can be the effect of my score after enquiries? Let’s understand it in detail.

But let’s first try to understand what a credit score is.

A CIBIL score is a number from 300 to 900 that shows how trustworthy you are with loans. It's figured out from things like how you've paid back loans before, how much of your credit limit you use, and how many credit accounts you have. A higher score means you're good at managing loans, which makes it simpler to get loans and credit cards with good conditions.

What do you mean by CIBIL Score?

CIBIL means (Credit Information Bureau (India) Limited (CIBIL)) is one of the credit bureaus in India. Who is responsible for generating our credit reports such as any ongoing loan, defaults and many others..

What do you mean by inquiry?

"Inquiry" refers to when someone, such as a lender or creditor, checks your credit report to evaluate your creditworthiness. There are mainly two types of Inquiry Hard Inquiry and Soft Inquiry

Hard Inquiries

This occurs when you apply for credit, such as a loan or credit card. Lenders perform a hard inquiry to assess your credit history and decide whether to approve your application. Hard inquiries can impact your credit score slightly and remain on your credit report for up to two years.  One thing is you need to provide an authorization to financial institution for a hard inquiry

Important note: Multiple hard inquiries can have negative impact on your credit score

When hard inquiry happens?

1. When you are applying for multiple loans such as credit card, personal loan, car loan and others.
2. When you make a decision to transfer a balance.
3. And other cases

Soft Inquiries

This happens when you check your own credit report, or when a creditor checks your credit as part of a background check or pre-approval process. Soft inquiries do not affect your credit score and are not visible to lenders when they review your credit report. You don’t need to give any authorization for soft inquiries.

Example: When you apply for a personal loan from HDFC Bank, a hard inquiry is made on your credit report. However, when you check your CIBIL score on the CIBIL website, it is a soft inquiry.

Impact of Hard Inquiries on CIBIL Scores

1. Short-Term Impact: Hard inquiries can lower your CIBIL score by a few points. Each hard inquiry typically reduces your score by 5-10 points. The impact is usually short-lived, lasting up to a year.
2. Long-Term Impact: If you have multiple hard inquiries within a short period, it can signal to lenders that you are credit-hungry, which may lower your CIBIL score further. However, as time passes, the impact of inquiries on your credit score lessens, and inquiries that are more than a year old have only a small effect on your score.

How frequently do you apply for new credit?

Answer:Wait until at least 6 months

How to Manage Credit Inquiries Effectively

1. Limit Your Credit Applications: To minimize the impact on your CIBIL score, avoid applying for multiple credit products within a very short period. Plan your credit applications strategically.
2. Monitor Your Credit Report: Regularly check your credit report to ensure there are no unauthorized hard inquiries
3. Opt for Pre-Approved Offers: Pre-approved offers from lenders involve soft inquiries, which do not affect your CIBIL score. Consider these offers if you need credit.

Myths and Facts About Credit Inquiries

Myth: Checking Your Own CIBIL Score Lowers It

Fact: Checking your own CIBIL score is a soft inquiry and does not affect your score

Myth: All Credit Inquiries Have the Same Impact

Fact: Only hard inquiries affect your CIBIL score, while soft inquiries do not.

Myth: Closing a Credit Card Eliminates Its Impact

Fact: The credit history of a closed credit card remains on your report for up to 7 years, influencing your CIBIL score.

Conclusion

Knowing how credit inquiries affect your CIBIL score is important for keeping your credit in good shape. By being smart about when you apply for credit and keeping an eye on your credit report, you can reduce the impact of hard inquiries and keep your CIBIL score high. A high CIBIL score means you'll have more chances for good financial options and better loan deals.

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Summary

Frequently Asked Questions (FAQs)

1. How many points does a hard inquiry reduce from my CIBIL score?

• A hard inquiry typically reduces your CIBIL score by 5-10 points.

2. Do soft inquiries impact my CIBIL score?

• No, soft inquiries do not affect your CIBIL score.

3. How long do hard inquiries stay on my credit report?

• Hard inquiries remain on your credit report for up to two years but only impact your score for up to one year.

4. Can I dispute unauthorized inquiries on my credit report?

• Yes, you can dispute unauthorized inquiries by contacting CIBIL and providing necessary documentation.