Mudra Compass

In today’s credit-driven economy, whether you’re applying for a home loan, a car loan, or a credit card, lenders assess your creditworthiness before approving your application. One of the key tools they use for this evaluation is your credit score, a three-digit number that reflects your credit history and behavior. However, not many Indian consumers fully understand the impact of loan inquiries on their credit score. While applying for a loan or credit card may seem like a routine process, the way and frequency with which you apply can affect your financial health more than you think.

This article aims to demystify loan inquiries and their role in shaping your credit score, particularly from the perspective of Indian financial institutions and credit bureaus like CIBIL, Experian, Equifax, and CRIF High Mark.

What Are Loan Inquiries?

A loan inquiry refers to the request made by a lender to access your credit report from a credit bureau. This typically happens when you apply for any form of credit — be it a personal loan, home loan, credit card, or even a Buy Now, Pay Later (BNPL) scheme.

There are two types of loan inquiries:

1. Soft Inquiry (Soft Pull) – This happens when you check your own credit score or when a company checks your credit for a pre-approved offer or background check. Soft inquiries do not affect your credit score.
2. Hard Inquiry (Hard Pull) – This occurs when a lender evaluates your credit report to decide whether to approve your application for a loan or credit card. A hard inquiry can impact your credit score, especially if multiple such inquiries happen in a short span.

How Hard Inquiries Affect Your Credit Score

When a hard inquiry is recorded on your credit report, it indicates that you are actively seeking credit. If there are too many such inquiries in a short time, it may raise red flags for lenders. Here’s how:

• Temporary Dip in Score – Each hard inquiry can lower your credit score by a few points (typically 5–10 points). Though not drastic, multiple inquiries can accumulate and reduce your score noticeably.
• Perception of Credit Hunger – Frequent loan inquiries suggest that you might be credit-hungry or facing financial instability. This perception can lead lenders to reject your application or offer higher interest rates.
• Short-Term Impact – The effect of a hard inquiry generally lasts for 12 months, though the inquiry itself may stay on your credit report for up to two years.

How Much Is Too Much?

There is no fixed number that defines “too many” inquiries. However, making more than 2-3 hard inquiries within a short span (like 30-60 days) is generally seen as excessive by Indian lenders. Especially in the case of unsecured loans like personal loans or credit cards, such behavior can lead to automatic rejections.

Shopping Around for Loans: Does That Hurt Your Score?

Many consumers compare multiple lenders before finalizing a loan — which is a financially prudent move. Fortunately, credit bureaus like CIBIL often treat multiple inquiries for the same type of loan within a short period (usually 14–45 days) as a single inquiry. This is particularly true for home or auto loans.

So, if you’re shopping for the best interest rate, do so within a short window to minimize the impact on your credit score.

How to Minimize the Impact of Hard Inquiries

Here are a few tips for Indian consumers to reduce the adverse effects of loan inquiries:

1. Check Eligibility Before Applying – Check your eligibility without triggering a hard inquiry.
2. Space Out Your Applications – Avoid applying for multiple loans or credit cards in a short period. Give at least 3–6 months between credit applications.
3. Monitor Your Credit Report Regularly – You are entitled to one free credit report per year from each of the four Indian credit bureaus. Use this to track and understand the inquiries on your profile.
4. Use Pre-Approved Offers Carefully – While pre-approved offers often come without a hard inquiry, applying for credit products aggressively based on them can still raise concerns.

The Role of Fintech and NBFCs

With the rise of fintech platforms and NBFCs in India, consumers are often bombarded with quick loan offers and easy credit approvals. While this convenience is beneficial, it can lead to multiple inquiries if you’re not cautious. Always verify whether a lender is making a hard or soft pull before proceeding.

Conclusion

Understanding the difference between soft and hard inquiries — and their impact on your credit score — is essential for maintaining financial health. While one or two hard inquiries are not a cause for concern, frequent and unnecessary credit applications can harm your ability to secure loans at favorable terms.

Indian borrowers must adopt a strategic approach to credit, focusing not just on access to funds but also on long-term financial well-being. Monitor your credit, apply wisely, and keep your credit profile healthy. A well-managed credit report can unlock better interest rates, faster approvals, and stronger financial opportunities.