Published in August 14, 2024
Credit enquiries, or credit checks, occur when a financial institution or other entity checks your credit report to assess your creditworthiness. In Australia, there are two primary types of credit enquiries:
💡Learn more about the two different types of credit enquiries
Hard enquiries can temporarily lower your credit score. This impact is usually minimal if you have a healthy credit history but can be more significant if you already have a low score or numerous recent hard enquiries. Each hard enquiry stays on your credit report for five years, although its influence diminishes over time.
Frequent hard enquiries can signal to lenders that you may be a higher-risk borrower, potentially leading to higher interest rates or even credit application rejections. It’s essential to be mindful of the number of hard enquiries on your report, especially during financial hardships when you might be more reliant on credit.
During financial hardships, you might encounter more credit enquiries for several reasons:
To accurately assess your financial situation, start by listing all sources of income. Include your salary, government benefits, and any other regular payments. Then, detail all your expenses. Break these into essential expenses such as rent, utilities, and groceries, and non-essential expenses like dining out and entertainment. Finally, list all your debts, including credit card balances, personal loans, and any other liabilities.
Financial hardship can arise from various causes, including:
A realistic budget is essential for managing your finances, especially during tough times. Here’s how to create one:
When facing financial hardship, it is crucial to communicate proactively with your creditors. Reaching out early can help you avoid penalties and maintain a positive relationship with your creditors, which can be beneficial for future financial interactions.
In Australia, various government assistance programs can help during financial hardship:
Eligibility varies by program:
Local charities and non-profit organisations often provide emergency relief funds. Check with:
Credit unions offer competitive interest rates and often more flexible terms than traditional banks. They provide personal loans, credit cards, and financial products tailored to members’ needs. For a list of Australian credit unions, visit the Customer Owned Banking Association.
Hard enquiries occur when a lender checks your credit report as part of a loan or credit application. Multiple hard enquiries within a short period can negatively impact your credit score. To manage this, only apply for credit when necessary. Frequent applications can suggest financial instability. You can use online tools to check eligibility before formally applying.
Timing can affect the impact of credit enquiries. If you’re shopping around for a loan, try to make all your applications within a short period (usually 14-45 days) to minimise the effect on your credit score. This way, they are often treated as a single enquiry.
Soft enquiries do not affect your credit score and are used for checking your credit report or when a lender offers you a pre-approved credit offer. Check your credit report regularly to stay updated on your credit status without impacting your score. Before applying for credit, use pre-qualification tools offered by lenders to get an idea of your chances without a hard enquiry.
Many lenders offer pre-approval processes that involve a soft enquiry to estimate your creditworthiness without affecting your score. This can help you gauge your chances before making a formal application.
Identify and dispute inaccuracies that could affect your score. Understand how your financial actions impact your credit profile. For regular checks, use services from one of the three main credit reporting agencies: Equifax, Experian, or Illion.
Maintaining a good credit score is crucial, especially during financial hardship, as it affects your ability to secure future credit and may influence the terms and interest rates offered to you. A strong credit score can help you access better financial products and provide more negotiating power with lenders.
Always make at least the minimum payments on your credit accounts. Missing payments or making late payments can significantly harm your credit score. Set up automatic payments for minimum amounts to avoid missing due dates.
Aim to use less than 30% of your credit limit. High credit utilisation can negatively impact your credit score. If possible, request an increase in your credit limit, which can help reduce your credit utilisation ratio.
Regularly review your credit report to ensure there are no errors or signs of fraudulent activity. This helps you stay informed about your credit status and catch issues early. You are entitled to one free credit report from each of the major credit reporting agencies annually. In Australia, you can access these reports through Equifax, Experian, Illion, or credit reporting service providers such as Tippla.
If you find errors or inaccuracies in your credit report, dispute them with the credit reporting agency. Corrections can improve your credit score. Each agency also provides a procedure for disputing errors, typically accessible through their website or customer service.
Financial advisors provide tailored advice on managing investments, retirement planning, and overall financial strategy. They help you set and achieve financial goals based on your circumstances. Financial advisors can also assist with creating a structured plan to improve your financial health and reach long-term objectives.
Credit counsellors offer guidance on managing and reducing debt. They help develop budgets, negotiate with creditors, and provide support to improve your financial situation. They act as advocates in negotiations with creditors, helping to ease the stress of financial hardship.
Effectively managing financial hardships requires a multi-faceted approach that includes understanding your financial situation, implementing practical strategies for budgeting, and seeking professional advice when needed. By setting realistic goals, creating a solid savings plan, and committing to ongoing financial education, you can build a stable financial foundation and pave the way for long-term recovery.
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.
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