Will Credit Inquiries Impact the Credit Score?

In case you are applying for a loan or a credit card, a good credit score is needed. Loan applications may be rejected or offered at high interest rates if your credit score is low.

Your credit score will depend on your credit usage, debt-to-income ratio, and repayment history. Credit inquiries also play a role in affecting the credit score.

Credit Inquiry – Definition

Any request that is made by lenders to the credit bureau to get a credit report is called a credit inquiry. Requests made by you are also a credit inquiry. The two types of credit inquiries are hard credit inquiries and soft credit inquiries. The Reserve Bank of India has mandated four credit bureaus in the country.

Soft Inquiry

Soft inquiries are done to check the credit score as well as to check if you are eligible to avail a loan or credit card. The credit score will not be impacted by a soft inquiry. No authorisation is required to make a soft inquiry.

Soft inquiries are done for the below-mentioned cases:

To know the credit score.
For background verification.
To check for insurance offers.
To check for credit card eligibility.

Hard Inquiry

Hard inquiries are done by financial institutions before the loan is disbursed. Hard inquiries will be mentioned on the credit report. Authorisation is required before a hard inquiry is conducted. Several hard inquiries will impact the credit score. Making several hard inquiries will indicate you have a shortage of funds.

Hard inquiries are done for the below-mentioned cases:

In case you apply for a credit card by two years from you last application.
Balance transfer of a loan or card.
To increase the credit limit.
When you apply for an education loan, home loan, car loan, personal loan, two-wheeler loan, etc.
When you apply for a credit card.

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Tips to Manage Hard Inquiries

Some of the tips that can be followed to minimise hard inquiries are given below:

Check the credit report on a regular basis.
Do not make several loan or credit card applications.
In case of any errors on the credit reports, get it corrected with the bureau.
Ensure all payments are done on time.

It is important that you check your credit report on a regular basis so that loan and credit applications are not rejected. Rejection of applications will impact the credit score. In case your credit score is low, ensure you make payments on time. A good credit score will ensure that you get credit cards and loans at attractive interest rates.

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