Managing and Understanding Credit Enquiries
Tulsi is a 25 year old medical professional who works in Pune. Not only is she good at what she does, she is also a responsible credit card user. She pays all her credit card bills on time and uses the credit facility diligently. There haven’t been any instances of payment defaults and she has never applied for a loan. Recently, she has been considering buying a car and she learned that she can apply for a car loan at her bank. She knows that her CIBIL score will play a crucial role in determining the fate of the loan application, but her best friend has told her that checking the credit score will be flagged as credit hungriness and hence will adversely impact her credit score. Hence, she proceeds with the loan application without realizing there was a discrepancy in her credit report which resulted in her application being rejected.
This is not a one-off incident. Many people are under the wrong impression that merely enquiring about one’s credit score will affect their credit score. Is there any base for this myth? We believe it arises from a misunderstanding regarding a soft enquiry and a hard enquiry? Let us try and understand the difference.
Case in Point
For this, let us go back to Tulsi’s case. What would have happened if she had gone ahead with the credit score inquiry? It certainly wouldn’t have been flagged as credit hungriness; instead it would have been marked as a soft enquiry, which is a standard practice. On receipt of the credit report, she would have realized the discrepancy, raised a complaint with the appropriate authority and rectified the mismatch. Armed with the corrected credit score, her loan application would have sailed through on the back of her impeccable record. This is a soft enquiry and as you can see, it has no impact on your credit score.
On the other hand…
Let us consider an alternate scenario. After applying for a car loan at her bank, Tulsi realized that a couple of others banks are offering the same loan at a cheaper rate and better repayment options. She decides to submit her application to them as well. Now, these banks as a standard practice will enquire about her financial history from credit agencies. These enquiries are hard enquiries and they DO impact the credit score. Multiple hard enquiries from different banks within a short span of time will certainly be flagged as credit hungriness, which banks do not have much appreciation for. In spite of multiple hard enquiries, Tulsi’s application might still be approved because of her positive credit history, but that may not be the case with other applicants.
These hard enquiries will remain in your credit report for as long as two years and that is a considerable period of time! So how do you ensure that these hard enquiries do not impact your credit score? Well, the only feasible solution is to conduct a thorough research before applying for a loan to zero in on a single lender that offers the best terms for the loan. The same applies for credit cards as well. Instead of applying for multiple credit cards frequently, find out which card is best for your requirement and submit an application for it.
Therefore, it is time to bust the myths surrounding soft enquiries on your credit scores. They do NOT adversely impact your credit scores and certainly won’t be a reason why your application will be rejected. And checking your credit score atleast once a year is certainly a recommended practice because then you can identify any discrepancies in your report and also it lets you be aware of your financial health. Credit agencies are as much for the service of individuals as they are for lending agencies. Diligent use of their services will certainly improve your chances of securing a loan or a credit card.
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