written by khatabook | November 14, 2022

Does CIBIL Score Decrease If You Check It? Importance of Checking

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Table of Content


A credit score is a number that represents your creditworthiness. It is used by lenders to determine whether you are a good candidate for a loan and what interest rate you will be offered. A higher credit score indicates that you are a lower-risk borrower and are more likely to repay your debt on time. A lower credit score means you are a higher-risk borrower and may be offered a higher interest rate.

Credit scores are used in many different ways. Landlords may use credit scores to screen potential tenants, and employers may use credit scores to determine whether to offer a job to an applicant. Insurance companies use credit scores to help set rates and decide whether to insure an individual.

A good credit score is generally considered to be a score of 700 or above, and scores below 700 are considered subprime and may indicate to lenders that a borrower is more likely to default on a loan.

Several factors go into a credit score, including payment history, credit utilisation, length of credit history, and types of credit. Payment history is the most crucial factor in a credit score, and even one late payment can have a negative impact. Credit utilisation, or the amount of credit used about the credit limit, is also essential. Using too much of the available credit value often results in decreased CIBIL scores.

Did you know? Bill Fair and Earl Isaac, a mathematician and an engineer, founded Fair, Isaac, and Company in the 1950s, and it was during this time that the first iteration of the current credit scoring system was created.

Why Is Credit Score Important?

Your credit score is essential because it is one-factor lenders look at when considering whether to give you a loan. A high credit score indicates to lenders that you are a low-risk borrower, which means you are more likely to repay a loan on time. On the other hand, a low credit score may make lenders hesitant to give you a loan or may result in you being offered a loan with a higher interest rate.

Credit scores are also used by landlords, utility companies, and insurers to determine whether to offer you their services and how much to charge you. A high credit score means you're considered a low-risk customer, leading to lower prices for things like insurance. A low credit score could lead to you being charged a higher interest rate on a loan or being denied.

Also Read: Role of Top Credit Information Companies | Process and Benefits

Does Checking My Credit Score Lower It?

Your credit information report contains information about each time your credit score is examined. There are two credit score inquiries categories: soft and hard. The classification of a credit inquiry is determined by who is looking at your credit report and why. Hard questions can damage your credit score; gentle questions typically don't.

Finding out the sort of query and the reason for it will help you determine whether or not reviewing your credit score will affect it. Let's first clarify the various credit inquiries:

What Is Soft Inquiry?

A soft inquiry is a credit inquiry that does not harm your credit score. You or a lender can generate delicate questions when you check your credit report, when a lender contains your credit for pre-approval of a loan, or when a lender checks your credit for account review purposes.

Does Soft Inquiry Lower My Credit Score?

A soft inquiry is a credit check that does not impact your credit score. Lenders may make a soft inquiry when considering you for a loan or credit card but have yet to decide whether to approve you. Soft inquiries also occur when you check your credit report.

What Is Hard Inquiry?

A hard inquiry is a credit check when a lender reviews your credit report to make a lending decision. Lenders typically use hard inquiries when considering approving a loan or extending credit.

Also Read: Know All About your CIBIL Score and Report

Does Hard Inquiry Lower My Credit Score?

Hard inquiries are generally only a cause for concern if you have many of them in a short period. Hard inquiries can stay on your credit report for up to two years, but they typically only impact your credit score for the first 12 months. After 12 months, hard inquiries will only affect your credit score if you have multiple inquiries from multiple lenders in a short period.

What Can Lower Your Credit Score?

Checking your credit score won’t affect it, but numerous other factors can adversely impact your credit score. Let's discuss some of them:

Payment history: 

Your payment history, which influences your credit score the most, will be in good shape as long as you make your debt payments on time each month. Your credit score could be negatively impacted if one of your payments is 30 days or more overdue. Your credit score may suffer the more your account is past due. The consequences of an account default could be very severe.

Payments due:

Although your overall debt load is a consideration, your credit use ratio is more crucial. Your credit card utilisation rate reveals how much of the available credit you are currently using. Your ratings will start to suffer if your utilisation rate rises above 30%; the lower your rate, the better. The best-scoring individuals typically have a utilisation rate in the low single digits.

Credit history duration: 

People with longer credit histories get better credit scores. However, the average age of your credit history could be lowered if you open new accounts too frequently. For instance, it will decrease the average age of your accounts even if you have used credit for, say, ten years but have taken out new credit too frequently.

Credit mix: 

A variety of credit, including credit cards, personal loans, mortgages, and loans for homes, cars, and students, is deemed helpful for your credit score. Only having one or two types of credit will limit your credit options rather than lower your credit score.

It's tough to pinpoint the precise amount of harm a negative item may do to your credit score because many factors are involved in determining it. But if you observe a decline in your credit score and wonder why to look at these factors to identify the most likely cause.

How Often Can You Check Your Credit Score?

Check your credit score frequently, and you may do so without damaging your credit. Whether you're asking for a home loan, vehicle loan, credit card, or something else, it's a good idea to verify before doing so. By doing this, you can ensure that no issues exist that would make it challenging to be authorised for a new loan or credit account. It also allows you time to resolve anything harming your credit score by checking at least a few months beforehand.

Checking your credit report at least once a year is also a smart idea. Your credit report contains the real data required to compute your score, whereas your credit score is a numerical snapshot of your overall credit health. Watch out for anything unfamiliar when you review your credit report. Contact the lender if you discover anything strange to confirm its validity. If you're asking for a car loan, the dealership might send your credit application to several lenders; occasionally, a lender will operate under a different name and report a name you're unfamiliar with to the credit bureaus.

Also Read: How do you repair your Credit Score?

Why is it Important to Check Your Credit Score?

A fraudulent account started in your name or debt you forgot about that was sent to collections, are two examples of potential issues that your credit score might help you identify.

Regularly checking your score will allow you to address these issues as they arise. If you wait until you're applying for a mortgage or other vital loan to check your credit score, you can find a significant error that takes weeks to correct.

Conclusion

Examining your credit report on your own is a soft inquiry and won't lower your credit score. As a result, you are free to check your score whenever and as often as you like. Keeping an eye on your credit score is a good thing. Before applying for a credit card or loan like a home loan, vehicle loan, education loan, personal loan, or any other sort of credit, you should always check your score. Before applying for a credit card or loan, checking your credit score will help you ensure that your application will be granted swiftly and efficiently.

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FAQs

Q: How can I check my credit score?

Ans:

It has been challenging to obtain free access to your credit score. But in recent years, it has become considerably more straightforward. For instance, many financial organisations allow clients to check their credit for free.

Q: Is no credit better than bad credit?

Ans:

Lack of credit and bad credit can make it hard to get a loan or credit card, rent an apartment and perform other tasks, but no credit is better than bad credit.

Q: Is it bad to have one hard inquiry?

Ans:

Inquiries aren’t necessarily bad for your credit score. But, multiple inquiries could lower your score. That’s because hard inquiries represent a “hard” pull on your credit, and numerous hard pulls can harm your score.

Q: How many inquiries are too many?

Ans:

Six or more inquiries are considered too many and can seriously impact your credit score. Your credit score is adversely affected by multiple inquiries because it’s an indication that you’re shopping for credit, which lenders see as a sign of financial instability.

Q: How can I improve my credit score?

Ans:

These are a few things that you can do to improve your credit score:

  • Pay your debt on time every month in the future.
  • Keep your credit card balances low.
  • Avoid applying for credit unless you need it

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.