Understanding Hard Inquiries On Your Credit Report
If you have any experience with availing any kind of loan, you would know that your credit score plays an important role. When you submit your loan application, the financial organisation will initiate a credit check hard inquiry. What this essentially means, they will review your current credit score, borrowing habits, repayment history, etc., to determine your loan eligibility and assess your creditworthiness.
A hard credit inquiry may have an impact on your credit score. If you are not very financially savvy or have never availed of a loan before, you may be wondering what is a hard credit inquiry and how credit inquiries affect your credit score. So, in this guide, we discuss everything you need to know about hard credit inquiry. Read on!
What is a hard credit inquiry?
A hard credit inquiry is also commonly referred to as a hard pull, and it occurs when you apply for a new line of credit, such as a credit card or a loan. It signifies that the financial organisation or the creditor has requested the credit bureaus to review your credit report to assess the level of risk associated with extending the loan to you.
When you, a financial organisation, initiate a hard inquiry, it will reflect on your credit report, and it may also cause the score credit to drop by a few points temporarily. The credit report assessment is part of the lender’s underwriting process, where they evaluate your creditworthiness.
When is a hard credit inquiry initiated?
Typically, hard inquiry credit score check occurs under the following situations:
- Applying for a new credit card
- Availing a new loan, like a vehicle loan, home loan, etc.
- Increasing the credit card limit
How long does a hard credit inquiry stay on the credit report?
When a financial organisation requests for hard inquiry on your credit profile, you can find the details of it reflecting on your monthly credit report generated in the subsequent months for two years. However, credit score inquiry impact is only temporary; it may affect your credit score for one year.
How do we minimise hard credit inquiries?
So, now that you know what are hard inquiries on a credit report and that it may cause your credit score to dip, it would help you know how you can minimise those hard credit inquiries. Here are a few simple tips:
First and foremost, avoid applying for multiple credit cards or loans at the same time or within a short period, as each new credit application will trigger a hard inquiry credit score and affect your credit score. Also, it may reflect your credit-hungry behaviour to the lenders, and they may consider you a high-risk borrower.
Another important to remember while trying to minimise hard credit inquiries is to check your credit report at regular intervals, preferably at least once every three months. This can help you identify unauthorised or mistakenly added inquiries. If you notice such a thing, you must immediately report it to the credit bureaus immediately to rectify the error.
Remember, credit card inquiries also trigger a hard credit inquiry, and it may affect your credit score negatively. 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 avoid unnecessary credit inquiries on cards that you don’t need or don’t plan to use.
What does a lender think when they see a hard credit inquiry in your credit report?
When a financial organisation pulls your credit report, they review your past repayment patterns, credit behaviour, and, more importantly, the number of hard credit inquiries reported in there. If there is any recent hard inquiry of credit reflected in the report, it indicates that you may have recently applied for credit with another financial institution.
From a lender’s point of view, it may suggest that you have financial needs and want to take more debt; they also understand that borrowers often compare the best loan or credit card offer before making the final decision. So, a couple of hard credit inquiries may not necessarily damage your creditworthiness or your chances of getting the loan approved.
Conclusion
Hard credit inquiries are an inevitable part of your credit profile. Although the credit inquiries may hurt your credit score, the impact is usually temporary. And your credit score will improve within a few months of the hard inquiry, especially if you make on-time EMI payments.
By understanding how hard credit inquiries work and how you can minimise these inquiries, you can also reduce their impact and keep your credit score protected. It is advisable that you limit your new credit applications, check your credit report periodically, and diversify your credit mix to maintain a high credit score and excellent credit standing.
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