Everything You Should Know About Credit Inquiry Process

Knowing about the credit inquiry process is important for keeping a good credit profile. If you are thinking of applying for a loan or just checking your financial stability, credit history matters in many ways. So, if you know how the credit inquiry process works, you save a lot of time and trouble. 

In simple words, a credit inquiry happens when a person checks your credit report. There can be many different reasons for such checking such as loan application, credit card application, or even job application. These inquiries are part of the ordinary credit reporting process and sometimes even impact your credit score.

Credit inquiries have two types:

1. Hard Inquiries

2. Soft Inquiries

An Introduction to Hard Inquiries

Hard inquiries happen when someone else, like banks or creditors, checks your credit report. The reason behind it is to measure the lender's risk. If your credit report is satisfying for your lender, you will be able to get the loan.

Reasons for a hard inquiry are:

1. Credit card applications

2. Loan applications

Each application you submit for a credit card or a loan results in a hard inquiry from your service provider. Additionally, applying for personal, auto, mortgage, and more loans can also start a hard inquiry.

Remember that hard inquiries affect your credit score and report. Such inquiries are known to lessen your credit score by a few points on every query. However, its effect lessens over time. But when there are multiple hard inquiries on your history, it does not look good to the lenders. It means that you are looking for a large amount of loan altogether which is considered as a warning sign.

Minimizing The Effect of Hard Inquiries

A hard inquiry is shown on your report for two years. If it affects your credit history for long, this inquiry disturbs your loans and credit card applications. Let’s understand how you can manage hard inquiries.

1. Credit When Necessary

Applying for credit cards often does not look good on your credit profile. So, remember to only apply for credit when it is absolutely necessary. This way, the report remains balanced for a long time.

2. Time Your Inquiries

While looking for a loan, people generally look for many options and select the best one. Now it is a common confusion if each time you rate-check a loan, it triggers a different hard inquiry. However, multiple rate-checks only count as one inquiry

Understanding Soft Inquiries

A soft inquiry is also known as a soft pull. It happens when your credit is checked but the reason isn’t credits or loans. Checking your own credit is a common example of a soft inquiry. It can also be made by someone else, like in the case of background checks by employers. 

Reasons for soft inquiry are:

1. Checking your own credit 

2. Pre-approved credit offers

3. Employment background check

Regularly checking your credit reports helps you balance your credit inquiries easily. Additionally, it can also help you know your financial state. As a result, it is a good practice that must be followed. This is why, soft pulls do not affect your credit score or report. In fact, to offer you pre-approved credit, banks sometimes make soft pulls as well.

Monitoring Credit Inquiries

As we discussed earlier, checking your credit inquiries is important in many ways. You can approach a credit information company for the same. TransUnion CIBIL Ltd. is India’s topmost credit information company that holds the credit information of more than a billion people. You can also find many other credit monitoring services that give real-time updates and alerts. 

These real-time updates also help you find out if there are any inquiries on your credit unknown to you. If you do, remember to instantly file a dispute with a credit bureau and inform the entity by whom the inquiry has been made.

Common Misunderstandings With Credit Inquiries

Oftentimes people have a number of doubts and factually wrong beliefs surrounding credit inquiries. Let’s separate these and understand the real facts.

Checking Your Own Credit Lowers the Score

Checking your own credit is a part of soft inquiries. Any kind of soft inquiry does not affect your credit score or credit report at all. In fact, checking your credit score regularly is a good practice.

All Credit Inquiries Affect Lower Your Credit Score

Oftentimes, people forget about soft inquiries and think that all inquiries lower their credit score. However, any sort of soft inquiry doesn’t touch your credit score.

Multiple Inquiries on the Same Loan Are Counted Separately

If you make many hard inquiries but all of them are related to a single type of loan, it is technically considered as a single inquiry. So, no matter how many lenders you contact, your credit score only goes down according to one inquiry.

Conclusion

Credit inquiries, be they hard ones or soft inquiries, are an important part of maintaining, financial health. Once you understand the difference between them, you can easily manage your credit score. By regular checking and following the best practices you can be sure of a good credit score. You must remember to only apply for credit when it is necessary. But even though hard inquiries affect your credit, their effect is almost none in a few months' time. With proper management, you can go through the credit inquiry process successfully.