Does Checking Your Credit Negatively Impact Your Credit Score?

Maintaining a healthy credit score is crucial for financial well-being as it significantly determines your eligibility for loans, credit cards, mortgages, rental applications, etc. If you regularly borrow credit, checking your credit score will be good practice so that you can make amends should it slip to prevent your credit application from being rejected. However, there's a common misconception that checking your credit can negatively impact your credit score. For responsible credit monitoring, it’s crucial to know what does harm your credit score.

Understanding Credit Checks

Credit checks are inquiries by lenders, landlords, or individuals to access your credit report and assess your creditworthiness. Every time someone checks your credit, it is noted on a credit information report. There are two main types of credit checks—soft inquiries and hard inquiries.

Soft inquiries are credit checks that do not affect your credit score. They are often conducted for non-lending purposes, such as when you check your own credit report, when a potential employer or landlord conducts a background check or when you receive pre-approved credit offers. On the other hand, hard inquiries occur when a potential lender reviews your credit report after you apply for credit—such as a credit card, loan, or mortgage.

Will Checking Your Credit Hurt Your Credit Score?

Checking your own credit report is considered a soft inquiry and will not harm your credit score. In fact, it is recommended to monitor your credit report regularly to ensure accuracy and detect any suspicious activity, such as identity theft or unauthorized accounts. Reviewing your credit report annually is a responsible financial habit.

However, each hard inquiry can cause a slight dip in your credit score, typically by a few points. But, a single hard inquiry's impact is minimal and usually temporary. Hard inquiries typically stay on your credit report for two years, but their impact on your credit score diminishes after the first year. If you have a solid credit history and make timely payments on your existing credit accounts, the effect of a single hard inquiry is unlikely to have a significant impact on your overall creditworthiness.

Furthermore, a single hard inquiry will not diminish your credit score by much, but having multiple hard inquiries within a brief timeframe might raise concerns among lenders about your financial situation. This potentially indicates a desperate need for funds. As a result, your credit score could experience a significant decline.

Avoiding Negative Effects On Credit Score

To mitigate potential negative effects, it is essential to be cautious about making multiple credit applications within a short timeframe. If you are actively seeking credit, consider thoroughly researching different lenders and their credit requirements before applying. Avoid submitting multiple applications simultaneously, as this can raise red flags and hurt your creditworthiness.

Protecting Your Credit Score

Understanding the impact of credit inquiries on your credit score is crucial to protect and maintain a healthy credit score. You can do this by:

Monitoring Your Credit Report Regularly

In India, you are entitled to one free credit report per year from each credit bureau, namely TransUnion CIBIL, Experian, Equifax, and CRIF High Mark. Take advantage of this and review your credit report regularly to ensure its accuracy. Checking your credit report yourself is considered a soft inquiry and will not harm your credit score.

Be Judicious With Credit Applications

Before applying for credit, thoroughly research different lenders and their credit products. Only apply for credit when you genuinely need it and are confident about meeting the eligibility criteria. Avoid applying for multiple credit accounts within a short span.

Pay Your Bills On Time

Timely bill payments have a significant impact on your credit score. Consistently pay your credit card bills, loan EMIs, and other financial obligations by their due dates to demonstrate responsible financial behavior.

Keep Credit Utilization Low

Maintain a low credit utilization ratio, which is the percentage of your available credit that you are currently using. High credit utilization can negatively impact your credit score, so aim to keep it below 30%.

By practicing responsible credit behavior, you can build a strong credit profile and enhance your creditworthiness in the eyes of lenders. IIFL can help you with this for free by giving you a detailed analysis of your credit behavior. You just need to fill out a simple form. What’s more, you can also avail of expert tips to improve your score and get personalized loan offers based on it so that you can make better financial decisions.