When applying for a home loan, one of the things that lenders will look at is your credit history. This includes any credit enquiries that have been made in the past few years.
If you have a lot of credit enquiries on your file, it can give the impression that you're struggling to manage your finances. This can make it harder to get approved for a home loan, or you may be offered a loan with less favourable terms.
Here, we'll learn about how credit enquiries can impact your home loan application:
What Information Will a Credit Enquiry Record?
When you apply for credit, the lender will almost always check your credit history. This is done by ordering a credit report, which is a record of your credit history. A credit enquiry is a record of this credit report.
A credit enquiry will record the date of the enquiry itself, the name of the lender, and the type of credit product you applied for. It can have a small impact on your credit score. However, if you have multiple enquiries in a short period of time, it can have a more significant impact.
How Many Credit Enquiries Are Considered "Too Many"?
There's no definitive answer to this question, as the number of credit enquiries that are considered "too many" will vary from lender to lender. However, as a general rule of thumb, having more than four or five credit enquiries on your file within a 12-month period could start to raise some red flags with potential lenders.
Credit enquiries are recorded on your credit report and are visible to any potential lender who checks your file. Therefore, if you have a lot of enquiries in a short space of time, it could give the impression that you're struggling to manage your finances or that you're taking on too much debt.
Of course, there are some situations where having a few extra credit enquiries on your file might not be a big deal. For example, if you're shopping around for a new car loan or credit card and compare rates from a few different lenders, this could result in a few extra enquiries. As long as you eventually settle on one loan or card and don't open multiple accounts, this shouldn't have too much of an impact on your credit score.
On the other hand, if you're constantly applying for new lines of credit and never actually using them, this could be viewed as a sign of financial distress. In this case, it's best to avoid applying for any new credit until you've managed to get your finances back on track.
Should You Avoid Making Credit Enquiries Entirely When Applying for a Home Loan?
Avoiding enquiries altogether will not necessarily help get your home loan approved because a credit history is crucial in showing your reliability in paying back your loans. Without any enquiries, you may need to build up your credit history before actually applying for a home loan.
It is important to understand how credit enquiries can affect your home loan application. While a few enquiries may not have a large impact, a high volume of credit enquiries can indicate to lenders that you may be experiencing financial difficulties. This can make it more difficult to obtain a loan, or may result in a higher interest rate. If you are planning to apply for a home loan, it is therefore important to manage your credit enquiries carefully.
Wealthy You is a trusted Australian mortgage company that offers home loans and other lending solutions in Sydney. Get in touch with us today to learn how we can help you!