Hard inquiry on your credit report: Harmless check or hidden score killer?

A hard inquiry on one’s credit report often sparks concerns among borrowers. It is a problem, especially for those who are about to apply for a new loan or credit card. Still, on a fundamental level, the question remains: Should you be really worried about a hard pull on your report?

What are the measures and steps that aspiring borrowers can take to protect their credit profiles and keep their credit scores high? Let us understand the basic concepts associated with hard inquiries.

What is the meaning of a hard inquiry?

When you apply for a credit card, personal loan, home loan, or any other loan, the lender checks your creditworthiness with a hard inquiry. Creditworthiness simply refers to the ability to make timely repayments.

Furthermore, this hard inquiry will appear on your CIBIL, Experian, Equifax, or CRIF report. It also has the potential to negatively impact your credit score.

Key points for borrowers to keep in mind

• Hard inquiries are authorised checks triggered only when you apply for credit.
• They remain on your report for up to two years, though their impact fades much earlier.
• A single hard inquiry generally reduces your score by a few points, not drastically.

How much should you really worry?

It is essential to note that a hard inquiry is not inherently harmful on its own. Still, multiple inquiries within a short period of time may signal ‘credit hungry’ behaviour towards lending institutions.

Why do lending institutions monitor this?

1. Frequent credit applications are an indication of financial stress and difficulty.
2. It helps lenders analyse the repayment discipline and risk appetite of a borrower.
3. Too many hard checks can lead to loan rejections, which further impact your financial profile.

Smart ways to handle hard inquiries

To maintain a healthy credit score, you should adopt these simple yet effective practices:

1. Never submit loan and credit applications in haste. Plan and space them out diligently.
2. Use calculators and tools provided on the official websites of lending institutions to your advantage.
3. Sit down with a certified financial advisor to plan borrowing and develop a repayment strategy as well.
4. Consistently monitor your credit report to identify and address any errors. Raise disputes promptly if you find any glaring discrepancies.
5. Compare loan/ credit card options, terms, rewards, prepayment requirements, and repayment rules carefully before agreeing to any particular credit product.

Hence, a hard inquiry is a normal part of the entire loan process. It is not something that aspiring borrowers should be worried about or fear. What is critical is to ensure that these hard inquiries don’t happen repeatedly within a short period of time.

As long as your credit management behaviour is disciplined, repayment is timely, and applications are measured, your credit score will continue to remain strong. This will facilitate the approval of future loans and credit cards more easily.

Disclaimer: MintMoney has a tie-up with fintechs for providing credit. You will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. MintMoney does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.