Whenever you apply for any credit product, a number of checks will take place. First, you will be checked to ensure you meet a lender’s eligibility criteria, and after this you will be subject to a credit check before a decision on your application will be made. What is the importance of the credit check and does it hold any significance with regard to your credit score?
What is a Credit Enquiry, and why is it done?
A credit enquiry is the check performed by a lender when they believe you meet the eligibility criteria for one of their products and you have made an application. Lenders perform credit enquiries by checking your credit file and credit score as held by one of the major bureaus. Here at [name], all applications are assessed based on credit files and scores from VEDA.
Credit files are checked for a number of reasons during an application and will tell a lender numerous 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 clearouts.
- How much and to what types of credit you currently have access to.
- Your credit score.
These checks happen in order to assess whether you are likely to be a good borrower or not and will be able to make your repayments on time. Lenders will have a system whereby a credit score over a certain value will be accepted, while below will be declined or potentially deferred while they seek more information from yourself.
“A credit enquiry is the check performed by a lender when they believe you meet the eligibility criteria for one of their products and you have made an application. Lenders perform credit enquiries by checking your credit file and credit score as held by one of the major bureaus.”
Do Credit Enquiries Hurt My Credit Score?
Repeated credit enquiries do have the potential to hurt your credit score. If you make a low number of credit applications or enquiries over a three-year period, then it is unlikely this will have any impact on your score. However, if you have many applications and enquiries over a period of a few months, this can hurt your credit score.
Such a pattern of enquiries is damaging as it reflects on the applicant as them having a desperate need for credit, and potentially points to deeper financial problems like an inability to manage their money effectively. Having a high number of credit enquiries on your file won’t damage your score in the same way a default will, but it can still prove a barrier to gaining access to credit.
While all applications for financial products such as personal loans will register 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.
“Repeated credit enquiries do have the potential to hurt your credit score. However, if you have many applications and enquiries over a period of a few months, this can hurt your credit score.”
How to Avoid Repeat Enquiries
It is common for borrowers to make an application for credit, be declined, and then make another application for credit immediately after, without realising the potential damage this is causing to their credit score. In order to avoid making repeat enquiries, you should check your credit file prior to making any application. Doing so will enable you to ensure that all the information is an accurate reflection of your credit history, and also means you can contact lenders or the credit agencies themselves to have any errors removed.
Subsequently, when you do apply for credit you will be able to do so with a level of confidence that your application will be accepted, as you will have an understanding of your credit score and how lenders see you, and are unlikely to need to make repeat credit enquiries for a financial product or service.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action, you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.