Credit score is an important requirement for availing a loan or a credit card. A good credit score can increase your chances of credit approval, whereas a low score can lead to rejection. When you apply for a loan or credit card, a lender carries out an institutional enquiry to assess your creditworthiness.
Consumers with limited financial knowledge or those new to finances need to understand how these enquiries can impact their credit score. Read on to know more about an institutional enquiry and how it impacts your credit approval.
What is an Institutional Enquiry?
When you apply for a loan or credit card, the lender requests your credit report from a credit bureau to assess your creditworthiness. This enquiry conducted by the lender against your credit application is known as an institutional enquiry.
An institutional enquiry is also known as a hard enquiry and is conducted by lenders primarily to analyse the risk of approving your credit application. This review plays an important role in the loan approval process.
When you check your credit score to understand your credit standing and not to apply for any credit product, it is considered a soft enquiry. Soft enquiries do not feature in your credit report and have no impact on your score.
You can carry out a soft enquiry through a credit bureau’s platform for free once every year. For regular credit checks, you may have to purchase a subscription plan. However, you can check your credit score and get it refreshed for free every month through Paisabazaar.
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When does a Lender Conduct a Credit Enquiry?
As per the prevailing privacy norms in India, no entity can conduct an institutional enquiry for you until you apply for a credit product, such as a loan or credit card. A lender initiates an institutional enquiry only in the following cases:
- When you apply for a loan or a credit card
- When you apply for restructuring a loan or modifying the loan interest rates
- When you apply to increase the credit card limit
Institutional enquiry is critical when you apply for a high-ticket loan, such as a home loan or an unsecured loan, such as a personal loan or business loan. A lender may not conduct any hard enquiry for products such as secured credit cards that are backed by fixed deposits.
How Long does an Institutional Enquiry Remain in Your Credit Report?
Every hard enquiry conducted by a lender against your credit application is mentioned in the credit report. This enquiry can remain in your credit report for up to thirty-six months.
Many credit bureaus, such as Experian and CIBIL, show the institutional enquiry in the credit report for two years, whereas CRIF High Mark can show such enquiries in the report for up to three years.
How Lenders Perceive Institutional Enquiries in Your Credit Report?
Lenders look at the Credit Enquiries section keenly at the time of loan approval to assess your creditworthiness.
When a lender conducts an institutional enquiry, they look at your repayment history, credit behaviour, utilisation and credit enquiries. Numerous credit enquiries in a short span may portray you as a credit-hungry borrower and might impact your creditworthiness.
A recent credit enquiry in your credit report may show that you might have applied for credit with other lenders as well, indicating that you currently need additional credit. But the lender also keeps it in mind that borrowers often apply for credit with multiple lenders due to a lack of credit knowledge. Hence, a few similar enquiries may not damage your creditworthiness.
| Lenders prefer applicants who make fewer, well-timed credit enquiries. Frequent or back-to-back checks may signal credit-hungry behaviour, so spread them out smartly. |
Also Read: How Credit Score Impacts Pre-approved Offers
How to Minimise Institutional Enquiries
Institutional enquiries in a credit report have the potential to impact your credit score and can lead to rejection in severe cases. Thus, you should minimise such enquiries and suppress your hunger for credit.
Instead of applying for a credit product with multiple lenders, do proper research before applying and then apply only with the lender where your requirements would be fulfilled and the chances of approval would be the highest.
Paisabazaar has a unique “Chances of Approval” feature where you can check beforehand whether your loan would be approved by a specific lender or not. This information is generated basis your credit profile, financial requirements and eligibility criteria set by the lender.
Applying only for the best possible offer would help you in keeping institutional enquiries low and also help prevent hassles while borrowing.
Suggested Read: 5 Most Important Things that Lenders Check in Your Credit Report
You should prevent applying for credit simply out of curiosity as all such enquiries figure in your credit report and may impact your score. If you want to stay updated with your credit health, check your credit report from multiple credit bureaus for free at Paisabazaar and get pre-approved offers based on your credit profile. Such enquiries won’t trigger any institutional enquiry and would not be reported in your credit report, thus having no impact on your score.
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