When Multiple Credit Inquiries Stack Up, Your Score Suffers
Well, this is exactly what Ravi, an IT professional working in New Delhi, did. But unfortunately he did it in a completely wrong way.
Ravi wanted to buy a house, and like any conscientious buyer, wanted to compare rates of different banks. So he sent a pre-approved loan request to as many as 5 banks.
He learned the rates of each bank for sure, but paid a heavy price for his knowledge. Multiple loan requests that he had sent negatively affected his CIBIL score, a key factor taken into account by financial institutions when deciding on a loan request.
Ravi learned the lesson the hard way, but you don’t have to burn your fingers to learn the same lesson. Be smarter. Learn how multiple loan applications affect your CIBIL report and how to handle your loan application more smartly.
Multiple Loan Requests Equal Multiple Credit Inquiries
When a financial institution looks at your credit information, a credit inquiry is created. When you raise a loan request with multiple banks, to check your credit worthiness, each bank checks your credit information. Each act of looking up at your credit information, in turn, creates a credit inquiry. So, if Ravi submitted loan applications with 5 banks, 5 new credit inquiries were created.
Not all Credit Inquiries are Equal
Credit Inquiries are of two types: hard inquiry and soft inquiry.
The inquiry that is created when a financial institution pulls up the credit information of a person when evaluating his loan application is termed as a ‘hard inquiry’. Such inquiries have an impact on your CIBIL score
An individual pulling up his own credit report or bank running a periodic check of existing accounts falls under the category of ‘soft inquiry’. A soft inquiry doesn’t affect your credit report.
The 5 inquiries generated on Ravi’s credit report following his submission of 5 loan applications to as many banks were all hard inquiries, and each affected his credit report.
How do Inquiries Affect Your Credit Score?
- Submitting too many inquiries in a short period is looked at by lenders as ‘credit hungry behavior’. They feel the requester is keen on grabbing as much credit as he can, and so is not a good prospect for giving a loan.
- Credit inquiries impact different individuals differently, chiefly because each person’s credit history is unique. The impact is more when your credit history is shorter.
- A single inquiry can pull your credit score by as many as 5 points.
How to Plan Your Home Loan Then?
Instead of sending loan applications to different banks, why not do some leg work to learn the interest rates and other charges of different banks?
You can do this by calling their relevant loan section (that is, the home loan department if you need a home loan and so on) or visit the nearest branch personally. Once you’ve gathered the necessary information, compare the rates and submit your application to the bank offering the best deal.