Whether you are planning to apply for a loan or a credit card, understanding the ins and outs of credit scores is vital to maintaining a healthy financial profile. Today, we will dive into the impact of hard enquiries on your credit score, so you can make informed decisions to build and preserve your financial reputation. In this article, we will explore what hard enquiries are, how they affect your credit score, and ways to minimise their impact. Let us get started!
Understanding credit scores
Before we delve into the effects of hard enquiries, let's quickly recap what a credit score is and why it is important. Your credit score is a numerical representation of your creditworthiness. It ranges from 300 to 900, with a higher score (750 or more) indicating a more creditworthy individual. Financial institutions in India, including Bajaj Finserv, often use the Credit Information Bureau (India) Limited (CIBIL) score to assess your creditworthiness when you apply for financial products.
Understanding hard enquiries
A hard enquiry occurs when a lender or financial institution reviews your credit report to assess your creditworthiness. Whenever you apply for a new credit card or loan, the lender concerned will request your credit report from credit bureaus like TransUnion CIBIL. This request leaves a mark on your credit history, known as a hard enquiry.
The impact of hard enquiries on your credit score
While a single hard enquiry typically has a minor impact on your credit score, multiple enquiries within a short span can raise concerns for lenders. Here is why:
- Reduced credit score: Multiple hard enquiries may lead lenders to believe you are actively seeking credit, which can be perceived as a risk. Consequently, your credit score may experience a slight dip.
- Enquiries timeline matters: Credit scoring models consider the timeframe in which the enquiries occur. If you are shopping around for the best loan or credit card, rest assured that multiple enquiries within a limited timeframe (typically 14-45 days) for the same purpose are generally treated as a single enquiry.
- Impact duration: The impact of a hard enquiry on your credit score is not permanent. Over time, its effect diminishes, and your score will recover, especially if you practise good credit habits.
Minimising the impact of hard enquiries
While you cannot entirely avoid hard enquiries when applying for credit, you can take measures to minimise their impact:
- Plan your applications: Avoid making multiple credit applications simultaneously. Instead, do your research, compare offers, and apply for credit only when necessary.
- Be selective: Apply for credit only when you genuinely need it. Avoid signing up for multiple credit cards or loans impulsively.
- Check your credit report regularly: Keep an eye on your credit report to spot any unauthorised enquiries. Reporting them promptly to the credit bureau can ensure their removal from your report.
Now that you have a clearer understanding of hard inquiries and their impact on your credit score, it is crucial to take steps towards building a positive credit history. One effective way to do this is through the Bajaj Finserv Credit Pass.
The Bajaj Finserv Credit Pass offers real-time monitoring of your Credit Health Report and monthly CIBIL Score checks, so you are always up to date on your credit standing and can apply for credit products when you are confident of approval. Furthermore, by making the most of interactive tools like the Credit Score Simulator and EMI Calculator you can make informed decisions about your future credit journey, minimising the number of hard enquiries. By following these suggestions and using credit responsibly, you can enhance your creditworthiness and secure better financial opportunities in the future.
