People in general call it a myth that every time you inquire about a loan there is a drop in your CIBIL score. However, it may be wrong to say that they are fully correct, but yes it can be claimed that they are partially right to a extent, and also simultaneously unknown and unaware of the fact that the inquires may or may not necessarily reduce your CIBIL scores. Unfamiliar with the fact that inquiry may or may not have any impact on the CIBIL scores depending on the type of inquiry you make. There are mainly two types of inquiries identified, namely the hard inquiry and secondly the soft inquiry
What Do You Mean By Hard Inquiry?
Hard inquiries are such inquiries where a financial institution, such as lender banks & NBFCs pull out your credit report to check your credit worthiness generally for the purpose of giving you a loan or credit card. When you apply for any type of secured or unsecured loans such as home loan, loan against property, instant personal loan, unsecured business loans and even for credit cards, you typically have to authorize them so that the lender banks & NBFCs checks your credit for making a lending decision to you.
Hard inquiries are also known as “Hard Pulls”. Hard pulls can cost you up-to five -ten points of your credit score which means that you have to be mindful of the credit / loans that you apply for, how often and number of times you apply for as each and every inquiry is added /reflected in your credit report which in turn reduces your credit score from five to ten points. These multiple hard inquiries in a short period make you a high risk customer for the lender Banks/NBFCs, reason being it suggests that you may are short on cash or getting ready to rack up a lot of debt. Multiple hard inquiries at once, such as applying for a number of credit cards at the same time, applying for a number of home loans & mortgage loans at the same time can have a significant impact on your credit score. For instance, 4 hard inquiries in latest 90 days can drop your credit score by more than 50 points.
1) In hard pulls it is important to note that any hard inquiry will remain on your credit report for 2 full years.
2) Multiple hard inquiries for the same product such as home loan, mortgage loan, personal loan, and car loan within short period of 14 days will be counted as a single pull and these pulls will not much affect your credit scores.
What Do You Mean By Soft Inquiry?
By contrast, unlike hard inquiry a soft inquiry is an inquiry that isn’t registered on your credit report. It occurs when you check your credit score, or when a lender is looking to pre-approve you for a loan or a credit card. These types of inquiries have no impact on your score and are also termed as “Soft Pull”. A soft credit inquiry also gives the same information that a hard credit inquiry does, including your payment and credit history, debt management and your credit score.
Examples of soft inquiries:
1) Checking your own credit score is a soft credit inquiry.
2) A lender Bank/NBFC who sends you a pre-approved credit/loan offer without you applying for a one is a soft credit inquiry.
3) If you already have a loan or credit card with a lender Bank/NBFC, they may review your account from time to time. This reviewing of account is a soft inquiry.
4) A lender Bank/NBFC that checks your credit to see if your credit limit can be increased.
5) A credit card issuer Bank/NBFC checks your credit (without your permission to see if you qualify for certain credit card offers) is a soft inquiry.
6) Any inquiry by your employer to check on your credit history before hiring you is a soft inquiry.
7) Any inquiry by an insurance company checking your credit history is also a soft inquiry.
Any number of soft inquiries does not affect your score at all.