What is a credit score?
A credit score is a numerical value that helps determine an individual’s credit value and worthiness. It is based on a credit report. Your CIBIL score has a range from 300-900. It would help if you always kept your score closer to 900 as it is considered a good score. Some banks and lenders would prefer giving loans to customers with a CIBIL score of 750 and above. Having a high credit score makes it easier for lenders to lend you money and sanction loans. However, having a low credit score has the opposite effect. Many myths revolve around checking your credit scores.
Two types of credit score inquiry:
Two types of credit score inquiry
Anytime you check your credit score, an inquiry is recorded on your credit report. Depending on who checks your credit score and how your credit score is checked, the inquiry will be divided into a hard or a soft inquiry. While a soft inquiry doesn’t usually impact your credit score, hard inquiries can impact them. Some people assume that checking your credit score can lower it: a myth again. Some credit score checks can, however, negatively impact your credit score.
There are two main types of inquiries – hard and soft. Hard inquiries are usually initiated because you have applied for a loan, and the creditor reviews your credit report to review the application. Soft inquiries are initiated for reasons other than actual credit score checks. These inquiries do not impact the credit score. Checking your credit score is harmless, but it’s different when a lender checks your credit score.
The hard and soft inquiry techniques help us understand the two ways of checking credit scores. Yes, checking your credit scores does help keep track and plan your finances accordingly and affects your mental state.
How frequently should you check your credit score?
It is reasonable to check your credit score once every 3-6 months. Your CIBIL score can be affected when you make multiple credit card inquiries. If you are a new credit card user, it is better to stick to one inquiry as it is considered the safest. When you own multiple credit cards, it becomes tiring to keep track of payments due. The inquiries you make amount to 10% of your total CIBIL score. However, it is essential to check your CIBIL report regularly. This will give you an idea about your current credit status and contain personal information and your credit card details. If there are any errors in your credit report, they can negatively impact your credit score.
Monitoring and checking your credit score is one of the most important financial habits an individual can build. Checking your credit score too often tends to lower it. Hence, do check it too often but once in a few months. You can check your credit score annually for free once to understand the numbers and see if updates have been made to it.
When analysing the impact of checking your credit score, it is always safe to be cautious and stay optimistic about contemplating what is truly financially beneficial to you. You can do this by using your credit card cautiously and wisely.