Whenever you apply for any credit product, several checks will take place. Firstly, you will be checked to ensure you meet a lender’s eligibility criteria,
You will then be subject to a credit check before a decision will be made on your application.
What is the importance of the credit check? How does it affect your credit score?
What is a Credit Enquiry, and why do I need one?
A credit query is the check performed by a lender once they believe you meet their eligibility criteria for one of their products. Lenders perform credit enquiries by checking your credit file and credit score as held by one of the major bureaus such as Veda.
Credit files are checked for several reasons during an application and will tell a lender several things about you, including but not limited to:
- That you are who you say you are.
- That you aren’t bankrupt or subject to any defaults, court action, or clear-outs.
- How much and to what types of credit you presently have access to.
- Your credit score.
These checks are carried out to assess whether you are likely to be a respectable borrower or not and will be able to make your repayments on time. Lenders will have a structure where a credit score over a certain value will be accepted however, below will be declined or potentially delayed while they seek more information from yourself.
Do Credit Enquiries Damage My Credit Score?
Repeated credit enquiries do have the potential to damage your credit score. If you make a low number of credit applications or enquiries over a three-year period, its less likely to have any impact on your credit score however, if you have multiple applications/enquiries over a period of a few months, this can damage your credit score.
Multiple enquiries reflect on the applicant as them having a desperate need for credit, and possibly suggests deeper financial problems like a failure to manage their money successfully.
Having many credit enquiries on your file won’t damage your score in the same way a default will however, can still prove a barrier to acquiring access to credit.
While all submissions for financial products such as personal loans will record a credit enquiry on your file, other enquiries may be done in the form of a soft credit check, which means your credit file will be checked without adding the enquiry to your file.
How to Prevent Repeat Enquiries
It’s common for borrowers to make an application for credit, be declined, then make another application for credit closely after, without realising the possible damage this is causing to their credit score.
To avoid making repeat enquiries, you should check your credit file prior to making any application, to avoid any unnecessary enquiries being placed on your credit file.
This will enable you to ensure that all the information is an accurate reflection of your credit history, and this means you can contact lenders and/or credit agencies themselves to have any errors/defaults removed.
Then, when you do apply for credit you will be able to do so with self-assurance that your application will be accepted, as you will understand your credit score and how lenders see you.
With Mortgage Choice our brokers can assess your ability to repay the selected product prior to submitting a credit application, they can also compare several products from multiple lenders so you don't have to.
Contact us today or more informaiton.