Credit Inquiry is an inquiry made by you or by the potential lenders/creditors/employers/landlords to review your credit report for understanding your financial behaviour. These inquiries remain on your credit report for 2 years
Sometimes these inquiries are referred to as “credit pulls” because you or any financial institution is pulling information about you from the credit Bureaus Files (Experian, Equifax, TransUnion – these are the three major credit bureaus from which the creditor or lenders request for borrowers credit report).
In some cases, these inquiries help the Potential Creditors/Lenders to get the figure about person recent Credit inquires, existing credit information and the payment history that how the person has handled their credit accounts. This helps them to decide that what are the chances that they will be repaid on time if they provide some sort of loans, Credit card or some other credits to the person.
Credit Inquiries can play one of the factors for the Approval or rejection of the borrower’s credit request.
Each time the borrower, Creditors or potential lenders review the credit report, a credit inquiry is added to the borrower’s Credit report instantly, which may give a negative impact on the Credit Report.
Credit Inquiry Breakdown into 2 Parts
- Soft Check/Soft Credit Pull
- Hard Check/Hard Credit Pull
Soft Check/Soft Credit Pull:- It is a preliminary Credit screening which is recorded on a credit report like every other inquiry but lender can’t see all the details and it can only be seen by the borrower, so it won’t affect creditor lending decision.
Soft Check occurs when the person checks his own credit report or it can also be initiated by the companies making a promotional offer of credit or your lender conducting a periodic review of your existing credit accounts. A soft inquiry can occur even when the borrower hasn’t applied for credit and it doesn’t negatively affect the credit score.
Hard Check/Hard Credit Pull:- Hard Check occurs when a borrower applies for any financial product like Loans, mortgage, Credit card, etc and give the consent to the lenders or financial institution to check his credit report, which the lender requires for the final decisioning . The hard check may have a negative effect on credit score.
It takes around 30 days to show hard inquiries in your credit report. It is reported immediately but can take time to reflect in your credit report.
How Soft Check and Hard Check Different from Each Other
When Soft and Hard Check Performed
- A soft check is performed when the borrower wants to review his credit report for better understanding of his financial behaviour. Soft check occurs even when the person didn’t apply for credit, so Many potential lenders, credit card and insurance companies can also perform the soft check to see if the person qualifies for pre-approved offers. Every inquiry is recorded on credit file but isn’t visible to companies so it won’t affect their lending decision. It is mostly used for a personal credit check, pre-approved credit offer, insurance approval.
- Hard Check is performed when an individual gives their consent to the financial institution or potential lenders to check whether they are fit to apply for it or not.
Financial institution performs the Hard check for understanding the financial behaviour of the individual, as while doing the hard check credit report shows the existing payment history, credit inquiries, loan history, identifying information, public records, credit score, collection accounts, etc. This information helps them in taking the decision regarding the person credit request, whether to approve or reject the application, whether he is capable of repaying the amount on time based on his repayment history.
Impact on Credit Score
- Soft check does not have any negative impact on credit score, as every inquiry is clearly recorded in the credit file but they are not visible to companies. So based on that the company cannot make a lending decision. It’s just an initial check on your credit report which financial institution perform to see if the person qualifies for pre-approval offers.
- Whereas, Hard check may negatively impact your credit score, as the company can do a complete check on your credit report and can see each and every inquiry you have made. Too many hard inquiries in a short period of time have a negative impact on your credit score.
According to Experian, With every hard inquiry the score comes down with 5-10 points or less, it may drop less than that if the person maintains good credit history with no other issues.
Hard inquiries are reported to 3 credit bureaus(Experian, Equifax and TransUnion) by your lenders and creditors. And these inquiries stay for 2 years in your credit report but mainly it impact your score for only the first 12 months.
What Hard and Soft Check Shows
The soft check shows detailed information about individual credit report like credit inquiries, loans, collection account, payment history. But these details are only visible to the borrower when they go for soft check for their credit report and not visible to the others.
Whereas in Hard check with the consent of borrower the potential lenders, creditors, employers or landlord can see each and every detail like loan history, repayment history, collection account, inquiries from which they get to know whether the borrower will be able to repay them on time, whether they should provide the credit requested by the borrower or not.
How Many Points Does an Inquiry Affect Credit Score
In soft check, every search is recorded in the credit report the very moment you made it, but it does not affect credit score as the inquires are only seen by the person himself and same is not visible to any financial institution or potential lenders. So there is no drop in points when the soft check is performed.
Whereas, As per Experian, on an average in Hard Check with every enquiry the credit score drop down with 5-10 points, but if borrower maintains proper credit report with no other issues than it may drop down with even fewer points.
Many Hard inquiries in a short period of time hit your credit score, and if the points in each inquiry made drop to 10 points the individual CIBIL score go down from good credit score to fair/poor credit score with five or more inquiries. This effect the decision of potential creditor or lender and affect negatively in the lending decision for borrower credit request, because poor credit report shows that borrower credit history is not good enough and giving any credit will lead to high risk of not getting repaid. Below is the credit score range which shows that what is the poor to excellent credit score report.
|Credit Score Range||What does it mean?|
|300 – 549||Poor|
|550 – 649||Fair|
|650 – 749||Good|
|750 – 900||Excellent|
How to Maintain Credit Score and Avoid Hard Check?
- The EMI should be paid on time as delay in payments will affect the credit score negatively.
- In general or even if the individual has a low credit score and due to many hard inquiries the points are dropping, then the borrower should keep in mind that they should apply for the loans or any credit request thoughtfully and infrequently, rather than just applying because they are easily available to you.
- Should check your credit report time to time to check whether any unauthorised inquiry is taking place or not.
- The hard check should not be performed without borrower consent, so the person should check their credit report time to time so that if they find any unauthorised hard inquiry than the quick action against should be taken immediately. To rectify the issues you can opt any one of the below-mentioned solutions:-
1.1.1. One way is to directly write the dispute letter to the creditor for removing the unauthorised inquiry specifically mentioning which inquiry you are talking about.
1.1.2. Or you can contact the three big credit bureaus where unauthorised inquiries are showed up and write dispute letter requesting removal of unauthorized inquiries. The reason for reporting to 3 credit bureaus is because not all the creditors/lenders report all information to all three of the bureaus, its possible that the inquiry will only show up in 1 or 2 credit reports of the borrower.