Applying for loans can have an impact on your credit score in Australia, but the extent of the impact will depend on several factors.
First, it’s important to understand how credit scores are determined in Australia. Credit scores are calculated based on the information in your credit report, which includes information about your credit accounts, payment history, and any credit enquiries that have been made in your name.
When you apply for a loan, the lender will typically make a credit inquiry on your credit report in order to determine your creditworthiness. This enquiry will be recorded on your credit report and can be seen by other lenders.
If you have a good credit history and a high credit score, the impact of a single credit inquiry on your score is likely to be minimal. In most cases, a single inquiry will only result in a small decrease in your score, and your score should recover relatively quickly.
However, if you have a lower credit score or a history of missed payments, the impact of a credit inquiry may be more significant. In this case, multiple credit inquiries in a short period of time can lower your credit score even more.
It’s also important to note that applying for multiple loans and being rejected can also negatively impact your credit score. This is because multiple rejections can indicate to lenders that you may be a higher risk borrower.
To minimise the impact of loan applications on your credit score, it’s important to be strategic about when and how you apply for loans. Here are a few tips:
- Use a comparison site: It can be useful to compare rates and terms from multiple lenders before applying. This will help you find the best loan for your needs and can also help you avoid multiple credit inquiries. Most lenders and some comparison services offer a soft enquiry (or a soft pull) which doesn’t show on your credit file and it is usually a good indication on what rate and loan amount you’d be eligible for.
- Space out your applications: If you need to apply for multiple loans, try to spread out your applications over time. This will help to minimise the impact of multiple credit inquiries on your score.
- Check your credit report: Before applying for a loan, check your credit report to ensure that all the information is accurate and up-to-date. Dispute any errors you find with the credit bureau.
- Consider a credit repair service: If you have a low credit score or a history of missed payments, consider working with a credit repair service. These services can help you improve your credit score and may be able to help you get approved for a loan.
It’s worth noting that while loan applications can have an impact on your credit score, they are not the only factor that lenders consider when evaluating your creditworthiness. Lenders also look at your income, employment history, and debt-to-income ratio when determining whether to approve a loan.
In conclusion, applying for loans can have an impact on your credit score in Australia, but the extent of the impact will depend on your credit history and the number of enquiries made. To minimise the impact on your score, it’s important to be strategic about when and how you apply for loans, and to take steps to improve your credit score if necessary.
Find out more about how to improve your credit score here and how to check your credit score in australia here.