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

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

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.

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.

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 Finance, Investing, and much more!, Checkout our partner blogs.