Think Before You Apply For Loan

When you want to avail a loan, you apply to various lending institutions, don’t you? Also, it is a common practice to apply to more than one lending institution to get the best terms on the loan. But do you think making multiple applications is always helpful?

An instant answer to this is, of course, yes! But do remember as you are waiting to get hold of the best option, all your loan applications are tracked by the credit bureau.

Each time you make a loan application, the lending institution obtains your credit report to judge your credit worthiness. This is reported on your credit report as an enquiry. Therefore, let us understand how these enquiries are going to impact you.

1. 10% of your credit score is calculated based on your enquiries and hence, it has the potential to bring your credit score down.

2. A high number of enquiries indicate a ‘credit-hungry’ behaviour, which is viewed negatively by lending institutions.

3. These enquiries will reflect on your credit report for a minimum of 7 years.

So how can you avoid a high number of enquiries?

In this age of technology, there are several loan comparison platforms available online that will help you compare the benefits, terms and conditions offered by various lending institutions. You can filter your choice and then apply to one that best suits your requirements.

While each time a lending institution obtains your credit report, it is reported as an enquiry, there is no harm if you check your own credit report. In fact, it is vital importance to monitor your credit report frequently (at least twice a year) to avoid identity theft and keep a check on your credit score.

Moreover, if you have obtained your credit report and found an enquiry which is not an outcome of an application made by you, you should raise a dispute with the credit bureau. Having a credit report which is true to your credit history is always advisable.

The trick is to apply selectively and wisely.

About the author: Satish Mehta is the founder and director of Credexpert, a credit and debt counselling company in India.
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