Credit Score: What's Soft Inquiry And Hard Inquiry?

Personal loans could be the most suitable options for access to emergency funds. A personal loan helps you with much-needed financial assistance when you may not have enough money in hand for some big-ticket spending or unplanned expenses.  However, access to borrowing options like a personal loan or credit score depends on a key factor— your credit score. The three-digit figure has become a most critical component for all who want to avail of various credit facilities.

The credit score, or the CIBIL score, reflects your borrowing and repayment history. The lenders often check your credit score before approving a loan or credit card to assess your creditworthiness and ability to manage money. Your credit history reflects how responsibly you have handled debts and repaid them. Your credit score depends on several factors and any inquiry about your credit report can impact the score.

The credit score ranges between 300 and 900, with higher numbers often preferred by lenders.

It is important to note that there are two kinds of inquiries, which are possible: hard inquiry and soft inquiry. 

While one affects your credit score negatively, the other won’t have any impact. As the credit score is an important metric to gauge your creditworthiness, it’s important to understand how soft and hard inquiries affect your CIBIL report.

A hard inquiry takes place when a financial institution evaluates your credit report and score to check your creditworthiness and judge whether you qualify for a loan or credit card. The credit report and the credit score are important yardsticks that decide your chances of accessing financial products. A hard inquiry takes place only if you provide consent for it.

A hard inquiry can negatively impact your credit score. Further, if there are multiple hard inquiries on a credit profile during a short period, it will have an even bigger impact on the credit score. A hard inquiry done by one institution will also be visible to other creditors and lenders. 

That’s why it is recommended not to apply for multiple credit instruments simultaneously. In case you have applied for a credit card or a loan, wait for the financial institution to declare its decision before you again make a similar application. Too many hard inquiries will be interpreted as credit-hungry behaviour by you, and could lead to rejection of your application.

A soft inquiry is done for gathering information about your credit profile. For example, you can access your credit profile, or a bank can access your credit profile to judge whether you qualify for a pre-approved offer. Similarly, an employer may want to check your credit background with a soft inquiry.  

A soft inquiry has no impact on your credit score. Thus, you or a third party can check your credit profile frequently without suffering any damage to your credit score. Soft inquiries are not visible to other financial institutions and have no impact on your loan applications. It is recommended that you check your credit report regularly to ensure that it has no errors or discrepancies. If you find any errors, you can raise a dispute to correct them.