Credit Enquiries: What Are They?
What is a credit enquiry?
Credit enquiries are a record left on your credit file showing that you applied for credit.
This credit file is held by credit reporting agency Veda, which is now acquired by Equifax.
Each time a lender views your credit file, they leave an enquiry as a record of your application with them.
Too many are a problem...
If you have many enquiries on your credit file then the lenders will see you as a high risk borrower.
They worry that you may have been declined by all of the other lenders, and they wonder what the other lenders know about you that they don’t!
As a result, your credit score is reduced.
The good news is that some lenders have low credit score home loans for Australians that have too many enquiries.
The six month rule
When it comes to credit enquiries, the major lenders prefer if you only have one or two enquiries in the last six months, any more than this then it is likely for the banks to decline your mortgage.
However, there are some lenders who are stricter and will ask for explanations for all the enquiries that you have made in the last two years.
In this case it would depend on the reasons that you provide to the banks to determine whether your loan application will be accepted for finance approval or not.
Please call us on 1300 889 743 or enquire online to find out which lenders take a lenient approach to your credit file activity.
How do you get credit enquiries?
Credit enquiries are saved against your credit file each time a bank or credit provider accesses your file.
In most cases this is when you apply for a loan. However it can include:
- Loans such as mortgages, personal loans or car loans.
- Credit facilities such as credit cards or store cards.
- Interest free finance for white goods or furniture.
- Utilities such as electricity or gas.
- Telecommunication services such as a mobile phone or broadband contract.
What will not create an enquiry?
Some activities will not cause an enquiry to be lodged on your credit file:
- Switching loan types (e.g. variable to a fixed rate).
- Buying a prepaid mobile phone.
- Closing an existing loan or credit card.
- Opening a bank account.
- Opening a visa debit card.
None of these activities will cause a credit enquiry as you are not actually applying for credit. For example a prepaid mobile phone is paid in advance, so it is not a credit facility.
Multiple enquiries for one application
Does your credit file show multiple enquiries even though you only made one application?
This is a common problem and is being addressed by Equifax with upgrades to their database. The main causes are:
- Amending the loan amount on an application in progress.
- A preapproval converting into a full application.
- Errors in the bank’s processing systems.
However, this problem may damage your credit score! If you are one of our customers just let us know and as a subscriber of Equifax /Veda, we can sort this problem out for you.
Are too few enquiries a problem?
Actually yes! However, it is usually only a serious problem for people who have never applied for credit before.
If you have never applied for a loan before then you have no credit file. The first time you apply for a loan your credit file will be created.
If you are in this situation then you can apply for a credit card with a small limit and then use this to prove yourself as a credit worthy borrower. Later you can apply for other types of credit.
However, if you have applied for credit before and you have not applied for credit within the last five years then you are unlikely to be seen as a high risk borrower.
What is my shopping pattern?
This is an industry term given to the types of credit that you apply for and the frequency with which you apply.
For example, someone who has applied for six credit cards all at the same time will be seen as a high risk borrower.
Whereas someone who has applied for a mortgage three years ago and then another mortgage again last month will be seen as a low risk borrower with a good shopping pattern.
Payday lenders are seen as the highest risk type of enquiry.
Have you applied with your current bank?
Some lenders have a rule that if you have already applied with your Main Financial Institution (MFI), which is the bank you have most of your accounts, loans and credit cards with, then they will automatically decline your loan!
The reason why they do this is that they do not know if your bank has approved or declined your loan, and if your loan was declined by your bank then you are likely to be a high credit risk.
The reason why you would be a higher risk if your bank has already declined your loan is that your bank “knows you” better than any other lender. If you have had a problem in the past that doesn’t show on your credit file, they will know about it.
This is an incredibly conservative way to assess a home loan, however many banks continue to use this method.
If you need help to apply with a lender that will not decline your loan just because you have applied with your current bank, then please call us on 1300 889 743 or enquire online and one of our mortgage brokers can call you to discuss your situation.
How long do enquiries stay on your credit file?
Credit enquiries will remain on your file for five years from the date that they were lodged.
However we find they do not have a large effect on your credit file after twelve months have passed.
What information do enquiries contain?
The following details are stored on your file for each credit enquiry and can be accessed by future institutions that check your credit file.
- The name of the lender / company / institution.
- The loan reference number / case number.
- The principal, co-borrower or guarantor (the type of applicant you were).
- The loan amount.
- The type of credit (e.g. real estate mortgage, car loan, credit card etc.).
How can I get a home loan if I have too many enquiries?
If you have applied for just one or two credit facilities within the last six months then your next loan may be declined. This is because banks perceive people as “credit junkies” if they have made too many recent enquiries.
Luckily enough there are specialist lenders that can get your application approved despite having made too many enquiries. However you will need to provide an explanation to the banks regarding the reason behind each enquiry and they will assess your loan accordingly.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will check your credit score and see if you can get approved.