Your credit score plays a crucial role in determining your financial credibility. However, individuals are often hesitant to check their credit scores due to the fear that it might negatively impact their creditworthiness. In this article, we will debunk this common myth and shed light on whether checking your credit score really hurts your credit scores. Let us delve into the details and provide you with a clearer picture.
Understanding credit scores
Before we address the myth, it is essential to comprehend what a credit score is and why it holds significance. A credit score is a numerical representation of an individual's creditworthiness. Lenders use this score to assess a person's ability to manage debt and their likelihood of repaying borrowed money. In India, the most commonly used credit scoring system is provided by CIBIL (Credit Information Bureau India Limited). CIBIL Scores range from 300 to 900, with 750 or higher considered the ideal score range by most creditors.
The difference between soft and hard credit checks
To clarify the impact of credit checks on your credit score, we need to differentiate between two types of credit enquiries: soft and hard credit checks.
- Soft credit checks: A soft credit check occurs when you check your own credit score or when a lender or financial institution does a preliminary check without your explicit permission. Soft credit checks do not affect your credit score in any way and are not visible to other lenders.
- Hard credit checks: On the other hand, a hard credit check is conducted when you apply for a new credit card, loan, or any form of credit. These enquiries are a crucial part of the lender's decision-making process and may impact your credit score temporarily. However, the impact is typically minimal and short-lived.
The myth: Does checking your credit hurt your credit scores?
The short answer is no. Checking your own credit score, which falls under the category of soft credit checks, will not harm your credit scores in any manner. You have the right to access your credit report without facing any negative consequences.
However, multiple hard credit checks within a short span of time could potentially have a damaging impact on your credit score. This is because frequent hard inquiries might indicate to lenders that you are applying for credit extensively, which could be interpreted as a sign of financial distress.
How to minimise the impact of hard credit checks?
While hard credit checks may have a marginal impact on your credit score, it is crucial to be mindful of how you approach credit applications. To minimise any potential negative effects:
- Plan ahead: Take time to research and apply only for credit options that suit your financial profile.
- Rate shopping: If you are shopping for the best interest rates on a loan, aim to complete all relevant applications within a short period. Credit bureaus often recognise multiple inquiries for the same type of credit as a single inquiry, lessening the overall impact on your credit score.
- Use caution with new credit: Avoid opening multiple new credit accounts simultaneously, especially if you have a limited credit history.
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