Does Checking your credit score lower it?
People rely heavily on loans these days to fulfil their needs and wants. Getting a loan which used to be a big hassle in the bygone days, has now been simplified and one can easily apply for any type of loan online from the comfort of their living rooms. Banks approve loans based on the applicant’s credit score which indicates his credit health, based on which they get can an idea about his/her repaying ability. Credit score being an important parameter when it comes to loans, usually ranges between 300-900. Banks and NBFCs sanction personal loans to customers who have a credit score of 750. It is important to know your credit score every now and then so that you may avoid loan rejections at the time when it matters the most.
There’s a big doubt in the minds of many applicants whether checking their credit score will lower it. The answer to it is, it depends on the type of inquiry.
A credit score inquiry is basically classified into two types,
- Soft Inquiry
- Hard Inquiry
While soft enquiries do not lower your credit scores, hard inquiries certainly can lower your credit score, now lets know about Soft Enquiries,
Soft Inquiry
As the name suggests, any inquiries done for genuine purposes in a way that does not seem suspicious or arouse misconceptions are called soft inquiry. Checking your credit score to determine your eligibility before Applying for a personal loan or a credit card is an example of soft inquiry.
- You checking your credit score. In fact, knowing your credit score and checking your credit reports may help you get in the habit of monitoring your financial accounts.
- b. employer checking your credit score with your permission.
Hard Inquiries
Aggressive inquiries to the credit rating industries, or applying multiple loans at a time, where the lender have to check your credit score and report, these instances fall under hard inquiry. Hard Inquiries can temporarily lower your credit score. Aggressively applying for loans at different banks means those bank initiate inquiries, which count as hard inquiry and thus may impact your credit score
It is advised that you check your CIBIL score (soft inquiry) once every 3 to 6 months, to keep yourself updated about the eligible loan offers.
Factors affecting your credit score
While it is true that a hard inquiry reduces your credit score, there are many other factors that contribute to reduction of your credit score
Poor repayment record
Your repayment history has the most influence on your Credit score. If you have a track record of missing EMIs and credit card payments, then your credit score will definitely be lower
High credit utilization ratio
credit utilization ratio is an important parameter that affects your credit score. Generally, it is advised to keep your credit utilization ratio below 30% of your total available credit.
Conclusion
These are some of the factors that may affect your credit score. There may be other reasons as to why your credit score reduces such as delay in updation of payments etc. It is important to keep your credit score good to ensure your loan chances does not get affected in the future.