Does Checking CIBIL Score Often Affect it Negatively

All financial institutions follow a strict process before approving your application, be it for a loan, credit card, or any other credit facility. One of the crucial steps in the process is reviewing your credit report and CIBIL score. 

This numerical representation of your creditworthiness influences everything from approvals to interest rates. Proactively checking your CIBIL score helps you to identify healthy habits and maintain a good score. This also raises the question, ‘Does checking the CIBIL score affect it?’ Know the truth behind the impact of frequent CIBIL score checks and monitor your creditworthiness responsibly.

Credit inquiries are of two types, depending on who is making the inquiry and the purpose behind it. These are described below-

Soft Inquiries

• When you as an individual check your credit score, it is called a soft inquiry

• An inquiry of your credit profile by an employer, insurance company, or landlord is also considered a soft inquiry

• The purpose of these inquiries is to get a glimpse of your financial situation and not to get in-depth details 

• Record of this type of credit inquiry stays for one or two years on your credit information report 

Hard Inquiries

• This type of inquiry only takes place when a financial institution checks your credit report and score

• This type of credit check is associated with any application and approval process

• You can avoid these by restricting pointless applications for credit and only apply with careful thought 

• If a financial institution checks your credit because you applied for a loan or a credit card, but you didn't apply- it could indicate potential fraud

• Hard inquiry stays on your credit report for up to two years

 

Based on the type of inquiry, you can take the right action to maintain your score.

When you check your CIBIL score, be it via Bajaj Markets or the official TransUnion CIBIL website, this is called a soft enquiry. It has no impact on your current credit score. 

 

In fact, monitoring your score is a good practice as it allows you to track your credit health and identify misreporting or fraud. Misreporting can occur when a financial entity reports a closed loan account as open, which can bring your CIBIL score down. You may also notice a fake loan in your name showing up in your report, which can also reduce your score. By raising a dispute, you can clear your name and boost your credit score. 

 

On the other hand, hard inquiries have a minimal negative impact on credit scores. This impact is greater and can hurt your score only when you apply for multiple loans at the same time. This results in multiple hard inquiries simultaneously. 

To answer the question, ‘Does checking the CIBIL score reduce it?’ -The answer is ‘No’. It only reduces in the case of multiple hard inquiries in a short span of time by financial institutions.

Your score hinges on a few key factors. Here’s a look at them and how they impact your CIBIL score. 

Payment Record

Not paying your loan or credit card dues on time plays a crucial role in calculating your credit score. Missing a single payment can have a negative impact on your score by 100 to 150 points. By maintaining a spotless payment history, you can increase your score. 

Credit Card Utilisation and Repayment

The amount of credit you usually use from your total available credit affects your CIBIL score. 

If you use more than 40% of your available credit, it indicates that you are dependent on credit and may bring down your score. 

 

Similarly, if you often pay only the minimum amount due rather than the total amount due on a credit card, it means that you are using the card irresponsibly. This decreases your score.  

Age of Credit

The total length of your credit history also impacts your score. A longer experience with credit improves your score as it makes you seem more reliable. Therefore, keeping your credit accounts open for a long time (such as maintaining an old credit card) is conducive to a higher credit score. 

Credit Enquiries

When multiple lenders generate your credit report via hard inquiries, it shows that you are desperate for funds. This reduces your score. 

Type of Credit Borrowed

Being able to manage different types of credits reflects positively on your credit profile. Experience with secure and unsecured types of loans or credit cards is important for a high credit score. 

Total Debt vs Income

A higher Debt-to-income Ratio (DTR) also brings your score down. Try to maintain a DTR of 30% to 35% for a good CIBIL score.

You can follow these tips to keep your credit score healthy:

• Don’t apply for many financial products in a short period of time to avoid multiple hard inquiries

• Pay your dues on time by using autopay options 

• Borrow only what you require and manage your credit responsibly 

• Check for any discrepancies in your credit report with periodic checks 

• Explore different types of credit rather than sticking with unsecured loans

• If you need funds for shopping, consider a consumer durable loan or the ‘Buy Now Pay Later’ option

The following myths will help you build your knowledge of credit scores and be better positioned to improve your credit health.

 

Myth: Checking the CIBIL score will reduce the score

Fact: Checking your credit score yourself qualifies as a soft inquiry, which does not have any negative impact

 

Myth: Closing old credit account improves credit score

Fact: Older accounts extend your credit history, contributing to a positive impact on the score

 

Myth: Student loan does not affect your credit score

Fact: All loans and credit cards influence your credit score 

 

Myth: Low income leads to low credit score 

Fact: Income is not a direct factor contributing to the calculation of credit score

 

Myth: It is very hard to improve your credit score

Fact: With smart credit planning and timely payments, you can boost your credit score over time

 

Myth: A low credit score makes you ineligible for a loan or credit card

Fact: If your credit score is lower than the minimum limit set by the financial institution, you have a higher chance of getting rejected; however, you can apply jointly, get an add-on card or offer collateral to access credit

 

Myth: Investments also affect CIBIL score

Fact: CIBIL scores are calculated based on your credit behaviour and not your investments

To be cautious, here are a few situations to protect your credit score against unwanted credit inquiries and the ideal times to monitor your score

• Check your credit score in an interval of 30 to 45 days, which is the time taken for CIBIL to update your score

• Make sure to apply for credit only if you meet all the other eligibility criteria set by the lender or issuer to reduce the chances of rejection after the hard inquiry, which can further reduce your score

• Check your score a month after you have closed a credit account to ensure it is recorded in your credit report accurately

• If you suspect any discrepancy in your score due to fake loans or misreporting, it is the ideal time to check it

• If you get any scam calls about delays in repayment for a loan you have not taken, generate your credit report to ensure there is no fraudulent activity in your name

On Bajaj Markets, you can get your free credit report and score to keep up with updates in your credit health.