Published in July 28, 2023
Credit scores play a crucial role in determining an individual’s financial standing and access to credit facilities. A credit score is a numerical representation of an individual’s creditworthiness, providing lenders with insights into the likelihood of timely repayment of debts. Maintaining a healthy credit score is essential for securing favourable loan terms, credit card approvals, and other financial opportunities.
One factor that can impact an individual’s credit score is the number of credit enquiries made by lenders when assessing their creditworthiness. A credit enquiry occurs when a lender or credit provider requests access to an individual’s credit report to evaluate their credit history and determine their eligibility for credit products. While it is essential for lenders to assess the risk associated with lending money, too many credit enquiries within a short period can potentially have adverse effects on an individual’s credit score.
In this article, we will delve into the effects of multiple credit enquiries on your credit score in Australia. We will also explore how credit enquiries are recorded, the distinction between hard and soft enquiries, and the potential impact on credit scores. Additionally, we will offer insights into best practices for managing credit enquiries to help individuals make informed decisions and maintain a healthy credit profile.
Credit enquiries, also known as credit checks or pulls, occur when a third party requests access to your credit report to evaluate your credit history. These enquiries fall into two primary categories: hard enquiries and soft enquiries. Understanding the distinction between these two types of enquiries is essential as they have varying impacts on your credit scores.
When you apply for credit, such as a new credit card, loan, or mortgage, the lender typically requests your credit report from a credit bureau to assess your creditworthiness. This type of credit inquiry is known as a hard inquiry. Hard enquiries can slightly lower your credit score and may stay on your credit report for up to five years. Multiple hard enquiries in a short period can be seen as a sign of financial distress, which can negatively impact your credit score.
A soft enquiry occurs when you or a third party checks your credit report for non-lending purposes, like a background check or pre-approved credit offers. Soft enquiries do not affect your credit score and are visible only to you, not to other lenders. They also have no impact on your creditworthiness.
There are three main credit bureaus in Australia and each one has a unique algorithm to calculate your credit score.
The Equifax Score bands can be broadly categorised as follows:
The Experian Score bands can be broadly categorised as follows:
The Illion Score bands can be broadly categorised as follows:
Credit scoring models typically consider various factors to calculate credit scores. These may include:
The specific weightage assigned to credit enquiries varies among credit scoring models. Generally, a single hard enquiry may cause a minor decrease in the credit score. However, credit scoring models often take into account rate shopping behaviour. If an individual is applying for the same type of credit product (e.g., a mortgage or auto loan) within a short period, multiple enquiries related to that product are usually treated as a single enquiry to mitigate any negative impact on the credit score.
Multiple credit enquiries can have adverse effects on credit scores, but there are several strategies borrowers can employ to mitigate these impacts and maintain a healthy credit profile.
To minimise the negative impact of multiple credit enquiries, borrowers should be prudent in applying for new credit. They should limit credit applications to only essential ones, focusing on credit products that align with their current financial needs. Avoiding unnecessary credit applications can help reduce the number of hard enquiries on their credit report and maintain a positive credit score.
Borrowers should be strategic in timing their credit applications to avoid consecutive hard enquiries. Making multiple credit applications within a short period can raise concerns among lenders and negatively affect credit scores. Instead, individuals can space out their credit applications, allowing sufficient time between each application to minimise the impact on their credit report.
Before submitting credit applications, borrowers can seek pre-approval offers from lenders. Pre-approval offers are based on soft credit enquiries and do not impact credit scores. These offers provide borrowers with an idea of their eligibility and the terms they may qualify for without generating hard enquiries. By exploring pre-approval offers, borrowers can make informed decisions and apply only to lenders where they have a higher likelihood of approval.
Helpful Tip: Tippla provides information on personalised credit offers that fit your current credit score. Sign up with Tippla to access this feature today!
Regularly monitoring and managing credit enquiries is crucial for maintaining a healthy credit profile. By being proactive and staying informed about credit enquiries, individuals can detect inaccuracies, unauthorised enquiries, and potential concerns early on.
Regularly checking credit reports for accuracy and unauthorised credit inquiries is crucial for maintaining a healthy credit file and protecting your financial well-being. Tippla, a multi-bureau credit score tool, can be a valuable resource in this process, offering access to your Equifax and Experian credit scores and reports to help you stay informed about your creditworthiness.
If individuals find inaccurate or unauthorised enquiries on their credit reports, they should immediately dispute these entries with the respective credit reporting agencies. The credit reporting agencies should investigate and correct inaccurate information on credit reports. Disputing enquiries helps ensure that credit reports are a true reflection of an individual’s credit history and reduces the risk of negative impacts on credit scores.
Credit monitoring services can provide real-time alerts and updates about changes to an individual’s credit report, including new credit enquiries. Such services help borrowers stay informed about their credit activity and identify any potential red flags. Platforms like Tippla offer credit monitoring services to help customers keep track of their credit scores and detect any unauthorised credit enquiries or changes in their credit reports.
Did You Know? 💡Tippla is a free tool you can use to monitor your credit score. We have partnered with two of Australia’s biggest credit reporting agencies so that we can provide accurate data to our customers. Sign up with us today to see your credit score and learn more about ways to improve your credit profile through Tippla’s credit school!
If an individual’s credit report shows an excessive number of credit enquiries or if they face challenges managing their credit, seeking professional advice or credit counselling can be beneficial. Credit counsellors can provide personalised guidance, offer financial management strategies, and assist in developing a plan to improve creditworthiness. They can help individuals understand how credit enquiries impact their credit scores and suggest steps to minimise potential negative effects.
For individuals seeking to rebuild and improve their credit scores after experiencing negative impacts from multiple credit enquiries, responsible credit management is key.
Responsible credit management is fundamental to rebuilding credit scores. It involves adopting financial habits that demonstrate creditworthiness and responsible borrowing. By proving their ability to manage credit responsibly, borrowers can rebuild trust with lenders and credit reporting agencies, leading to improvements in their credit scores over time.
One of the most critical factors affecting credit scores is the payment history. To rebuild credit, individuals should prioritise making timely payments on all credit accounts, including loans and credit cards. Consistently paying bills on time demonstrates reliability and positive credit behaviour, positively impacting credit scores. Additionally, reducing outstanding debts can help improve credit utilisation and signal financial responsibility to lenders.
Credit utilisation, the ratio of credit used to the total credit available, significantly influences credit scores. Keeping credit utilisation low, ideally below 30%, demonstrates responsible credit management and can positively impact credit scores. By paying down debts and using credit wisely, individuals can maintain a healthy credit utilisation ratio and improve their creditworthiness.
Managing credit inquiries wisely is crucial for maintaining a healthy credit profile. Hard inquiries resulting from credit applications can lower credit scores, while soft inquiries have no impact. To minimise the negative effects of multiple inquiries, individuals should be selective in their credit applications, limiting them to essential needs and spacing them strategically. Seeking pre-approval offers and using services like Tippla’s personalised loan offers can help assess eligibility before applying for credit, reducing unnecessary inquiries.
Effective credit score maintenance involves monitoring and managing credit inquiries. Regularly checking credit reports for accuracy and disputing any errors or unauthorised inquiries with credit reporting agencies are essential practices. Credit monitoring services, such as Tippla’s, keep borrowers informed about their credit status and help detect potential concerns early on.
Additionally, responsible credit management, such as making timely payments, reducing debts, and maintaining a healthy credit utilisation ratio, is vital for rebuilding and improving credit scores after multiple inquiries. With patience and persistence, the impact of inquiries diminishes over time with consistently responsible credit behaviour.
While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.
What are deductibles and what do they mean for...
The process of personal loans and how they work...
Maintaining a healthy credit score has become more critical...
Is your loan set or can you increase your...
Stay up to date with Tippla's financial blog