How Your Credit Score May Affect Your Loan Application
When you’re making big financial decisions, such as applying for a personal loan or even simply switching telco providers, it’s important to understand the impact your credit score has and how it’s in turn affected.
Creditors and lenders sneak a peek at your credit score and credit report before they approve (or sometimes deny) your applications. Every time a business contacts a credit bureau to request your credit report for further insight into your financial history, this can have an impact on your credit score too.
Why? Well, firstly your credit score itself is determined based on the information held within your credit report. Information such as credit enquiries – how many applications you’ve made over the last 5 years. Even if your credit score isn’t brought down by too many applications, those applications will become a part of your credit history and remain there for 5 years.
Too many applications for credit can be seen as a sign that you’re struggling financially. Providers may worry you’re taking on too many new accounts or “churning” credit cards – that is, applying for new cards to take advantage of low balance transfers or other sign-up offers. A card issuer may reject your application if they think you’ve applied for too many other cards recently, even if you didn’t take up those offers.
The following changes and applications typically involve a credit check:
- Switching your mobile phone service
- Switching utilities or internet service
- Switching your financial institution or mortgage lender
- Applying for buy now, pay later finance
- Applying for a credit card
- Applying for a personal loan
- Applying for a mortgage
- Applying for a balance transfer on credit card
- Applying for a car loan
What you can do instead
It’s always smart to make new applications sparingly. When you’re considering opening new accounts or changing providers, do all of your research first and find your chosen provider before applying to them alone. Definitely avoid making any new applications if you’re getting your finances in order for a major application, such as a home loan or a business loan.
The good news is, so long as you’re responsible with your loan repayments (i.e meeting your regular monthly repayments every month) these positive actions may positively influence your credit score over time.
Knowing and understanding your credit score is an important part of staying on top of your finances. Your credit score is what some lenders may look at when deciding if you’re a good loan risk. Take advantage of free offers to monitor your credit score .
