Understanding Hard vs. Soft Enquiries
Every time you apply for a credit card or a loan, the lender requests your CIBIL report to assess your creditworthiness. This is known as a "hard enquiry". Each hard enquiry is logged on your report and can slightly lower your score by a few points. In
contrast, a "soft enquiry" occurs when you check your own score or when a financial institution checks your profile for pre-approved offers. Soft enquiries have no impact on your CIBIL score and are often not visible to other lenders. The key takeaway is that applying for credit triggers a hard enquiry, while simply monitoring your score does not.
The 'Credit Hungry' Red Flag
From a lender's perspective, a person applying for multiple lines of credit in a short period—say, a few new credit cards and a personal loan within a couple of months—appears to be in financial distress. This pattern of behaviour flags you as "credit hungry," suggesting you may be over-leveraging yourself and could have trouble repaying your debts. Lenders see this as a sign of increased risk, making them more hesitant to approve your application. Even if your intentions are simply to find the best interest rate, a flurry of applications can send the wrong signal and negatively affect your profile.
How Multiple Enquiries Damage Your Score
While a single hard enquiry might only cause a temporary dip of 5-10 points in your CIBIL score, the cumulative effect of several enquiries can be significant. These enquiries remain on your credit report for up to two years, although their impact on your score typically diminishes after about one year. For young professionals with a limited credit history (a "thin file"), the impact can be even more pronounced. A cluster of enquiries can quickly lower your score, potentially pushing you into a lower credit bracket and making it harder to get approved for the loans you need for major life events, like buying a car or a home.
The Smart Way to Shop for Credit
Avoiding multiple enquiries doesn't mean you can't compare offers. The strategic approach is to do your research before formally applying. Many financial portals and lender websites offer pre-qualification tools that use a soft enquiry to check your eligibility. This allows you to gauge your chances of approval and see potential rates without any negative impact on your score. Once you've identified the best offer, you can proceed with a single, formal application. Some credit scoring models also treat multiple enquiries for the same type of loan (like a home or auto loan) within a short window (typically 14-45 days) as a single event to allow for rate shopping.
Beyond Enquiries: Pillars of a Great Score
Building a CIBIL score above 750—a level considered excellent by most lenders—involves more than just managing enquiries. The most critical factor is your repayment history; always pay your EMIs and credit card bills on time. Another key element is your credit utilisation ratio, which is the amount of credit you use compared to your total limit. Aim to keep this ratio below 30%. Finally, having a healthy mix of different types of credit, such as secured loans (like an auto loan) and unsecured credit (like a credit card), demonstrates that you can responsibly manage various financial obligations.
