Your Credit Score Achieved By Applying To Lenders
Hard and soft investigations
If you are looking to get the cheapest loan offered, you should compare the loan rates offered by several lenders. However, this exercise has a negative implication for your credit score and your profile, which is why you need to understand the difference between hard and soft credit applications and their impact on your credit score.
Whenever you apply for credit, such as a mortgage, car loan, or credit card, lenders ask the credit bureaus a question to analyze your creditworthiness. These direct inquiries initiated by the lender are called hard inquiries, and the bureaus can lower your credit score by a few points for each request they receive about you.
What is the impact of credit score inquiries?
Multiple inquiries can be added to many new accounts. Opening such accounts may mean that you are having difficulty paying your bills or that you may be overspending. As a result, harsh inquiries have a negative effect. Credit scoring models take into account the possibility that you are looking for the best loan deal available. Every serious request projects you as a credit-hungry consumer, thus lowering your credit score. These consumers are often viewed as risky by lenders, causing lenders to reject your loan application or approve it at a higher interest rate.
When you check your own credit report or authorize someone like a potential employer to review your credit report, an indirect investigation occurs. Minor requests can also occur when businesses, such as lenders, insurance companies, or credit card companies, check your credit to pre-approve you for offers.
Does it affect the credit score?
Since inquiries are not tied to a specific request for new credit, these inquiries have no effect on your credit score as they are never considered a factor in credit score models. Inquiries are not objectionable but are available for reference.
What should you do
Instead of submitting multiple loan applications directly to lenders, you should consider visiting online financial markets to compare loan options across a wide range of lenders and choose the most suitable one for submitting your loan application. While these markets also get your credit report to provide you with loan offers, these are straightforward requests and don’t hurt your credit score. Are you looking for direct lender only? Try here
This article originally appeared in Economic Times and has been reprinted with permission.