What Is an Institutional Inquiry? All You Need to Know
If you have any experience with availing any kind of loan, you would know that your credit report plays an important role. When you submit your loan application, the lenders initiate a credit check inquiry. This essentially means that they will review your current credit history, borrowing habits, repayment history, etc., to determine your loan eligibility and creditworthiness.
This type of query is known as the institutional inquiry and will reflect in your credit report. If you have limited financial experience or those who are new to financial matters or first-time loan applicants, it’s important to understand that credit inquiries may affect your credit report. So, in this guide, we discuss everything you need to know about institutional credit inquiry. Read on!
What is an institutional inquiry?
An institutional inquiry, commonly referred to as a hard inquiry, occurs when you apply for a new credit product, such as a credit card or loan. Simply put, it means the financial institution or lender has requested your credit report from the credit bureaus to assess the risk of lending to you. This review of your credit information is a key part of the lender’s underwriting process, where they determine your creditworthiness.
When does a lender initiate a Credit inquiry?
Lenders typically assess your credit score in various circumstances, such as
- when you apply for a new credit card,
- when you secure a new loan (for example, a car loan or mortgage), also
- when you request an increase in your existing credit card limit
How long does a lender’s credit inquiry stay on the credit report?
When a financial institution initiates a credit inquiry on your profile, the details of that inquiry will appear in your monthly credit report and remain visible for up to 36 months. The frequency of credit inquiries is one of the factors lenders use to evaluate a borrower’s creditworthiness, although it is considered alongside other information in the credit report.
What Does a Lender Think When They See an Institutional Inquiry on Your Credit Report?
When a financial institution pulls your credit report, they review your past repayment history, credit behaviour, and notably, the number of institutional inquiries listed. A recent institutional inquiry suggests that you may have applied for credit with another lender. From a lender’s perspective, this could indicate a current need for additional credit. However, they also recognise that borrowers often explore multiple options to find the best loan or credit card offer. Therefore, a few such inquiries are generally not seen as damaging to your creditworthiness or your chances of loan approval.
How do we minimise lenders’ credit inquiries?
Now that you understand what institutional inquiries are, it’s helpful to know how you can minimise their impact. Here are a few simple tips:
First, avoid applying for multiple credit cards or loans simultaneously or within a short span of time. Every new application initiates a credit inquiry, which can negatively impact your credit score. Another important step is to regularly review your credit report, ideally once every three months. This practice can help you spot any unauthorised or incorrect inquiries. If you find any discrepancies, report them to the credit bureaus immediately to have them corrected.
Remember, credit card inquiries also trigger a credit inquiry. So, it is advisable that you do your due diligence, assess your credit card needs, apply for a card that suits your financial requirements and making unnecessary credit inquiries for cards you don’t require or intend to use.
In conclusion, it’s best to avoid applying for multiple loans simply to check your eligibility or out of curiosity. Each application results in a recorded inquiry on your credit report, and too many inquiries within a short period can give the impression that you are experiencing financial difficulties, even if that’s not the case.
If you want to assess your credit eligibility or monitor your credit health, it’s better to use a credit report obtained directly from a credit bureau. These Direct-to-Consumer (D2C) reports allow you to check your credit without triggering an inquiry, ensuring your score remains unaffected. Regularly reviewing your credit through D2C reports is a smart habit that helps you stay informed and protects your financial reputation from the very start of your journey.