Whenever you apply for a loan or credit card, it affects your credit score. A drop in your score can make it harder to get loans or cards later, especially during emergencies.
That’s why it’s important to know how loan inquiries work and how they impact your credit report.
1. Hard Inquiry vs. Soft Inquiry – Know the Difference
When you apply for a loan or credit card, the lender checks your credit report – this is called a hard inquiry. It can cause a small drop in your score and stays on your report for up to 2 years.
But when you check your score yourself, or a bank gives a pre-approved offer, it’s called a soft inquiry.
A soft inquiry does not affect your score. Understanding this difference is very important.
2. Avoid Applying for Multiple Loans Together
If you apply for many loans or credit cards within a short time, multiple hard inquiries are recorded.
This may signal to lenders that you’re in financial trouble. As a result, your credit score drops, and it may become difficult or expensive to get credit later.
3. Time Interval Between Inquiries Matters
Making too many inquiries within a short period can have a long-term impact on your report.
These records stay for years and can reduce your chances of getting a loan at a low interest rate. So, apply carefully and keep a gap between applications.
4. Watch Out for Unknown Inquiries
Sometimes your credit report may show inquiries you didn’t make. This could be due to a mistake or misuse of your personal details.
That’s why it’s important to check your credit report regularly. If you see anything unusual, report it immediately.
5. How to Recover from a Drop in Credit Score
Even if your score falls a bit due to a hard inquiry, don’t worry. You can improve it by:
Paying EMIs and credit card bills on time
Keeping your credit usage low With these good habits, your score will bounce back within a few months.
