It depends on the kind of search you do. There are specific searches that affect your score whereas some searches do not. We shall look at these aspects in detail.
Why do you need a credit score? You need a credit score so that lenders can get information and decide whether or not to lend you. Your credit report reveals all the information about your debts and your repayment patterns. It is the most critical document that lenders use to influence their decision.
Yes, utility providers, debt collection agencies, and even landlords can check your credit reports (of course, with your permission). You can also check up your credit report once every twelve months. But, these checks will not affect your credit score in any way.
There are two types of checks on your credit score, the soft checks and the hard checks. The soft check is a preliminary check as the lender or searcher can search for information, but will not see your credit report information. Such checks are not visible to lenders. Therefore, you can have many soft searches without having an impact on your credit score.
When you apply for a Personal Loan or any other loan, lenders do a hard check to get more information about your credit history. These checks, also known as credit application checks, can leave a mark on your credit report. Therefore, prospective lenders can make out whether anyone has searched for your credit information. It affects your credit score and brings it down. These searches stay on your credit report for 12 months. Debt collection checks remain for two years.
If there are more hard checks on your credit report, it shows that you are desperate for credit. It places you in the high-risk category. It also indicates that you are struggling with your debt. In reality, it may not be so, but lenders perceive you as a risky borrower. As a result, the chances of rejection of loans like the unsecured Personal Loans are high. You cannot Apply for the Low Rate Personal Loan as well. Thus, you end up getting a loan with a higher interest rate.
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Avoiding searches is difficult because you might apply for a Home Loan or a Credit Card and so on. Every hard search can reduce your credit score by a minimum of 20 points. Remember that banks approve Personal Loans and Credit Cards to borrowers having a high credit score.
The solution is to use an eligibility checker before you apply for the loan facility. These checks indicate the type and amount of loan you are eligible to get. Accordingly, you can apply for products where the chances of approval are high.
Checking your credit history is vital. Your credit report will show when the lender reviews your report. It is helpful in detecting frauds as you can identify when someone else is trying to take credit in your name.
It is natural for anyone to check out the various interest rates and other features, especially while availing Home Loans, mortgage loans, and student loans. You cannot avoid multiple inquiries. However, lending institutions can make out such searches and understand that you are doing rate shopping. Hence, it does not affect their decision.
These searches do not find a place in your search report for the first 30 days. Then 30 days after you make your first application, all such applications made during this 30-day period amalgamate into a single enquiry. The latest credit scoring models use a 45-day window for rate shopping. Shopping for a similar type of credit, under such circumstances, does not affect your credit score. However, it does affect your credit score by causing your rating to drop. You can improve the rating by continuing to pay your other debts on time.
Even though your credit rating can drop, you should not omit to do rate shopping. It can get you access to the best offers available on the market.
We can sum up by saying that soft searches do not affect the credit rating whereas the hard searches do. Nevertheless, it is unavoidable. If you wish to take a loan, you have to submit to a credit search.
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