Loans, whether private personal loans, home construction loans, or higher education loans- are all expensive. Besides, getting any kind of loan means getting a big responsibility on your shoulders.
Since the interest rates are usually quite high with most types of loans, it is always a good idea to compare your options and wait until you get the best deal. However, sending loan applications can also have an adverse effect on your credit score. Since loans for bad credit score are difficult to come by, it's best to protect your score by shopping around for one in a controlled manner.
To understand how your actions affect your score and how much is too much when it comes to loan shopping, you must first understand the difference between hard enquiries and soft enquiries.
Soft Enquiries: Soft enquiries are the enquiries made to CIBIL or any other credit bureau by you. People usually make soft enquiries to get details of a CIBIL dispute, or to monitor their credit score. These enquiries don't have a negative effect on the credit score.
Hard Enquiries: When a bank or any other financial institution makes an enquiry to CIBIL or any other credit bureau to get a better understanding of your creditworthiness, then it's called a hard enquiry. These enquiries do have a negative effect on your credit score.
In a bid to get the best possible loan many people apply at several banks and lenders. However, what happens in this is that these institutes send hard enquiries to the credit bureaus during the loan application assessment process. This causes their credit scores to take damage and further reduces the probability of loan approvals.
If you want to get a loan at an attractive interest rate then it's natural if you want to apply at various banks. However, if you don't want to damage your credit score due to multiple enquiries, then it's a good idea to insert a gap between them. Thus, instead of sending out loan applications at multiple banks all at once, you can send one application at a time, and wait for at least 2 weeks before sending another application to another bank.
The following are a few things worth noting about credit score enquiries:
You must always be careful with your loan applications. Still, if you have mistakenly damaged your score due to multiple hard enquiries, then you can take certain measures to restore it to a healthier state. For starters, you should stop sending any more loan applications until your score gets better again.
If you want to improve CIBIL score fast, then you must start paying your credit card bills and loan EMIs on time. Even if you have never used a credit card before then getting one is also a good idea, granted that you use it wisely. This is because credit variety is a good way to boost a credit score. In fact, the more are the loans and credit cards you have experience using the better it's for your score.
If you are unsure what's the best way to improve your CIBIL score, then you can also consult a friend who knows about credit management.