To get a loan – especially a personal loan – a person needs to have a good credit score. Higher the score means higher the creditworthiness of a person. A high credit score would not only make it easier for a person to get a loan, but would also allow him/her to avail it at a lower interest rate and on favourable terms.
However, if you are in need of a loan and checking your credit score frequently to ascertain eligibility, you would be shocked to know that your score will reduce a bit every time you check it!
So, why does the credit score of a person drop a bit every time the person checks his/her score?
“Scrutiny of the credit score is done in two ways – soft inquiry and hard inquiry. A soft inquiry is when you check on your own credit score or a financial entity (lender, credit card company, bank, etc.) checks your credit score to pre-approve a loan or issue you a credit card, and this does not impact your credit score. In fact, even employer credit checks are considered soft inquiries,” said Neha Shivran, Chief data & Analytics Officer, RING.
“However, if a lender or company requests to review your credit reports after you have applied for credit, it is considered to be a hard inquiry. These types of hard inquiries have an impact on your credit scores and depending on your current credit score, credit history, and the nature of the hard inquiry, it can impact your score. When a person enquires to the bureau for a product, it is seen as a sign of credit hungriness, more so when there are enquiries without corresponding loans being taken,” she added.
So, before taking a loan, how to ensure that you know your credit score, but without impacting it much?
“It is advisable always to plan your finances and make an informed choice of the loan you need rather than going shopping for credit. Because then, the risk of impact on your credit score is high,” said Shivran.