Soft inquiries are typically run by lenders on existing customers to see if you qualify for certain credit products or offers. A hard inquiry, on the other hand, gets registered on your credit report. Hard pulls occur when you send in your application for personal loans, credit cards, home loans, car loans or property loans — literally every legit form of credit you apply for. The fundamental problem with multiple hard inquiries is that they influence lenders to form a negative impression about you credit behaviour.
Too many hard inquiries over a short time-period showcase you as a credit-hungry customer with a consequently high risk-quotient. When faced with high-risk profiles, most lenders choose to reject, or at best offer a super-high rate of interest — either way, clearly unfavourable to the customer.
While it is true that multiple inquiries by themselves have a negative impact, they directly influence rejection, and rejections can be very damaging to your CIBIL score. Importantly, applying with DSAs or external agents can potentially increase the number of hard inquiries in your report. Like us on Facebook and follow us on Twitter. Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.
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The information on this site does not modify any insurance policy terms in any way. But did you know that credit inquiries make up 10 percent of your FICO score and some types of credit inquiries can lower your credit score?
There are a lot of reasons why someone might inquire into your credit history. When you apply for a new credit card, take out a mortgage or rent an apartment, lenders and landlords conduct credit inquiries to determine whether you are likely to be a financial risk.
A lot of people wonder how much credit inquiries affect their credit score. And it's not just credit card applications and loans that pull your credit report, resulting in a hard inquiry. Lenders may also look at your credit if you ask for a credit limit increase. Although hard inquiries remain on your credit report for two years, FICO only considers inquiries from the last 12 months when calculating your credit score. For example, if you see a hard inquiry listed on your credit report but it was from over a year ago, it wouldn't influence your credit score or deduct any points from it.
They say "most" people because not everyone has the same credit history. If you have a healthy credit history and credit score to begin with, it's likely that any hard inquiry on your credit report would do very little damage to your score, or even none at all. Hard inquiries tend to have a greater impact on the credit scores of people with a short credit history or few credit accounts.
This means that for those just starting to build their credit , a hard inquiry can knock off more points from your credit score than it would for someone who has a long credit history.
But don't let that prevent you from applying for credit. It's OK to have inquiries periodically — it indicates you are trying to build credit — but you just don't want too many hard inquiries on your credit report in a short amount of time.
But they play a big part when it comes to credit card issuers and lenders assessing your potential risk. Lenders pull your credit report to see how credit worthy you are, but finding a bunch of inquiries on your credit report will show them you may be financially stressed and a bigger risk for borrowing in the future.
According to FICO , "Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. But while these hard inquiries do show risk, lenders also consider other factors when making approval decisions, such as your income and payment history.
Hard inquiries aren't bad to have — even if they may cause a slight temporary dip in your credit scores — but it can be good practice to know how to minimize the number of inquiries on your credit report. If you spot a hard inquiry on your credit report, don't sweat it too much. It's there because your credit was pulled by an issuer or lender when you applied for a credit card or loan.
And if your credit score does get dinged from it, it's OK.
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