Want loan? Beware! This is what can really hurt your chances of getting money

Getting a credit inquiry is advisable if you are looking for any kind of bank loan. However, multiple credit inquiries are not advisable. According to experts, it poses a grave danger to your CIBIL score. If you apply for credit simultaneously with multiple lenders, your CIBIL score is bound to take a hit. Before we go on to figure out how and why this happens, let’s first look at what credit inquiries are.

Speaking on what are credit inquiries Aditya Kumar, Founder & CEO Qbera.com said, "A credit inquiry is a successful request by a lending institution to pull your CIBIL report from the bureau. Inquiries typically happen when you apply for new credit – credit here can be any form of secured or unsecured credit. This technically means that when you apply for a credit card or a personal loan, a credit inquiry successfully happens."

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Aditya said that inquiries are essential of two types – hard and soft. So, let’s understand what they mean:

Soft Inquiries: A soft inquiry, also commonly referred to as a soft pull, is a …. Conducted by a lender on an existing customer to assess if he/she qualifies for specific products or offers. Soft inquiries don’t impact a customer’s CIBIL score, and neither the customer nor the lender will know of soft inquiries that’ve taken place. To give you an example, if you have an existing relationship with a bank in the form of say, a credit card, the bank might do a soft pull to see if you qualify for any offers or if you’re eligible for an enhancement in your credit limit based on your credit health. 

Hard Inquiries: Hard Inquiries, on the other hand, are the real kind of inquiries that can potentially impact your credit score if they happen repeatedly. It is important to understand that not just any random hard inquiry will negatively impact your score. Let’s cite an example in this regard – say you’re applying for new credit (a credit card or a personal loan) and your credit score is already good. Your CIBIL score is almost certain to not be affected when your lender makes a hard inquiry. The problem is not with hard inquiries, but multiple hard inquiries – Yes, they can be detrimental!

"When a lender finds too many hard inquiries in recent months, they form the understanding that you extremely credit hungry, an aspect that poses them significant risk if they lend to you. Risk-based pricing is a standard model that lenders employ to fix the cost of borrowing in accordance with a consumer’s risk profile. Higher the risk, higher the cost of borrowing. Determining risk isn’t only confined to looking at hard inquiries, a lot of elements converge to arrive at a consumer’s risk quotient," said Aditya Kumar of Qbera.com.

Therefore, it can be easily understood that banks and lenders aren’t fond of credit-hungry behaviour and often reject applicants who’ve had too many hard inquiries in recent months. Another problem here is that every instance of rejection is registered in your report, and multiple rejections will only cause other lenders to reject you as well, resulting in your credit score taking a massive beating.

In order to avoid such a situation, it is important to apply with the right lender and pick only one lender instead of sending in your application to several lenders. Applying with DSAs and third-party agents can also pose a risk, as these parties send your credit application to multiple lenders, and multiple inquiries invariably follow.