Understanding Hard Inquiry in your credit report
Whenever you apply for a loan or a credit card, a hard pull or hard Inquiry occurs from the lender’s side. It is done to evaluate your creditworthiness to assess risks. In this post, we will learn in detail about hard Inquiry and the impact on its credit score and also the number of hard enquiries allowed by each institution for personal loan sanction
What is Hard Inquiry?
Suppose you are applying for a loan from a bank, the lender asks you to review your credit history before approving your request. That way of reviewing your credit history for the purpose of loan approval is counted as hard pull or hard Inquiry. Compared to a soft Inquiry which involves just background screening, hard Inquiry involves reviewing your credit report completely.
It’s always a good practice to review your CIBIL score periodically everytime before you apply for a credit product such as personal loan or credit card. A Hard Inquiry involves evaluating your payment history, loan balances, number of active loans, and credit card outstanding etc.
How does Hard Inquiry occur?
A lender asks for a borrower’s complete credit history whenever he/she applies for a credit product. The lender may examine the report by choosing an agency based on their requirements. Whenever a lender accesses your credit report, it is marked as a hard inquiry. If you have multiple hard inquiries within a short time, it may impact your credit score and bring it down. Eventually, you will also lose out on loan prospects
When a Lender Opts for a Hard Inquiry?
There are multiple instances where the lender opts for a hard inquiry. It is done mainly to assess the borrower’s credit history
- Applying for a loan: Suppose you have applied for a home loan or a personal loan, the lender will send a hard inquiry to the bureau asking for your credit report to assess the risk before lending
- Credit Card Applications: Applying for a new credit card creates a hard pull, allowing the issuer to assess your credit report to determine your eligibility
- Mortgage Pre-Approval: Lenders perform hard inquiries when processing a mortgage pre-approval to check your ability to repay a home loan
- Requesting Credit Limit Increases: Whenever you raise a request for credit limit increase in your credit card, it may lead to a hard inquiry as the lenders assess for potential risk in increasing the limit
How Hard Inquiry affects your credit score?
Typically, a hard inquiry is on a credit report for two years and it impacts the overall credit by five points atleast. Multiple hard inquiries on a credit report indicates that borrower has applied for multiple loans and has not proper repayments
- A Reduced Credit Score: The credit bureau thinks that you are applying for a new loan whenever a hard inquiry is done. This may a significant drop in your credit score on a temporary basis
- Low Credit Status: Credit Scores can throw some light on the repayment record of the borrower. However, a hard check temporarily reduces your credit status and making you ineligible for loans
- Adds a new component to your credit score: Hard inquiries indicate that you have applied for a new credit and may influence a portion of your credit score. Lenders use it to evaluate how good you are in handling credits. A hard inquiry is listed in your credit report
- Reduced Loan Approval: If your account has multiple hard inquiries, then you will have a hard time getting loan and credit card approvals as lenders may think you are credit hungry.
Tips to manage hard inquiries:
- Space out credit applications.
- Regularly monitor your credit report for accuracy.
- Number of Hard Inquiries allowed
