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Business News/ Money / How does a pre-approved loan influence your CIBIL score? MintGenie explains

How does a pre-approved loan influence your CIBIL score? MintGenie explains

Loan pre-approval is a preliminary assessment of your eligibility for a loan based on basic information such as your credit score and income.

When you apply for loan pre-approval, the bank may conduct a soft inquiry on your credit report.

When you are given a loan’s pre-approval, it usually has a minimal impact on your CIBIL score. This happens because it leads to a soft inquiry rather than a hard inquiry.

In other words, loan pre-approval does not influence your CIBIL score in any significant way. Let us understand what is a soft inquiry.

Pre-approval

When you apply for loan pre-approval, the bank may conduct a soft inquiry on your credit report to evaluate your creditworthiness. These inquiries do not impact your credit score since they are not initiated by you for the purpose of obtaining credit. Instead, they are used for background checks, pre-qualification, or promotional purposes.

Loan pre-approval does not lead to any sort of commitment from either bank or the borrower. It’s an initial assessment of your eligibility for a loan based on basic information such as your income, credit score, and debt-to-income ratio.

Since there’s no formal application or credit extension involved at this stage, it doesn’t have a significant impact on your credit score.

ALSO READ: Can I get a personal loan to pay off student loans? MintGenie explains

Negligible impact

A soft inquiry may appear on your credit report; it’s typically not visible to other lenders and does not affect your credit score, at least in any substantial way. Even if it is visible, it has barely any impact when compared to hard inquiries, which occurs when you formally apply for loan.

It’s important to note that if you proceed with the formal loan application after receiving pre-approval, the bank will conduct a hard inquiry, which can impact your credit score.

Frequently Asked Questions:

Why should you check your credit report?

Monitoring your credit score regularly helps you stay informed about your financial standing and any changes that may impact your ability to borrow money or access financial products.

How often should you check your credit score?

Most experts recommend to check the credit score at least once a year.

ALSO READ: Personal Loan: How to choose the right payment plan? Here are some essential points to keep in mind

Can there be mistakes in credit reports?

It is not uncommon to spot mistakes on credit reports. So, regularly checking your credit score allows you to spot any errors, such as inaccuracies in personal information or incorrect reporting of accounts or payments.

Does applying for new loan impact the credit score?

Each time you apply for credit, it triggers a hard inquiry that can temporarily lower your credit score. So, it is advisable to limit new credit applications, particularly if you’re planning to take out a significant loan soon.

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