CIBIL Inquiry

Hard Vs Soft Credit Inquiries: What do They Mean?

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If you’ve ever applied for any form of credit (personal loan, home loan, car loan, etc.), you’re probably familiar with the concept of credit score. For the uninitiated, credit score or CIBIL score is a 3-digit number that determines your creditworthiness. So, if you’ve been paying your bills on time and have a low credit utilization ratio, your score is likely to be higher and vice versa. 

Since high credit score ensures low interest rates for personal loans (and probably every other form of unsecured credit) it is always a good idea to work on improving it. 

Every time you apply for a new form of credit, your lender will assess your credit score, repayment history, and the number of inquiries made on your credit report over the last few months. If your report reflects multiple inquiries, it will end up taking a toll on your credit score, eventually pulling it down. Why? Because multiple credit inquiries indicate higher credit risk. 

Credit inquiries are broadly classified into hard and soft inquiries. Let’s find out what they mean and how they affect your credit score. 

Hard Inquiries

When you apply for credit like home loan, car loan, instant personal loan, or credit card; your potential lender checks your credit report from our National Credit Bureau. Since these inquiries are directly linked to your credit application, they are termed hard inquiries.

How Do Hard Inquiries Affect Your Credit Score?

Multiple hard inquiries in a short time window might be an issue of concern to your potential lender. This is because multiple hard credit inquiries add-up to new credit accounts. And when you attempt to open more than one credit account at the same time, chances are, you’re doing this because you’re struggling to clear your dues or are on the verge of overspending. 

In the simplest terms, multiple credit inquiries indicate credit hungry behavior. They, therefore, have a negative impact on your credit score. 

Hard credit inquiries continue to reflect on your credit report for two years (or more). Their impact, however, starts reducing with time. In almost all cases, these inquiries can’t be directly pulled out of your report. So, before applying for a loan, explore your available options and avoid applying to multiple lenders at the same time. 

Soft Inquiries

Every time you check your own credit report or give someone (like your potential employer) the permission to review it, a soft credit inquiry takes place. These inquiries might also happen when potential lenders, insurance agencies, or credit card companies assess your report for pre-approving you for their offers.  

As soft credit inquiries aren’t directly linked to your application for a new form of credit, lenders wouldn’t know of any soft pulls that might have occurred in the past. 

How Do Soft Credit Inquiries Affect Your Credit Score?

Soft credit inquiries don’t have any negative impact on your credit score as they are never deemed relevant in major credit scoring models. Although you cannot dispute these inquiries, you can always use them for reference. 

Bottom Line

Now that you’re fully aware of hard and soft inquiries and their impact on your personal loan application, avoid applying to multiple lenders simultaneously. For quicker approval, always weigh out your options and apply to one lending platform at once. 

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