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What is an Enquiry on my Credit File?

Nov 19, 2021 | Finance Tips

Summary

You may not be aware, but every time you apply for a loan, it is highly likely that your application is recorded on your credit file as an enquiry.

What to look out for?

    • An application for finance here and there will likely not impact your credit score, however excessive loan enquiries in a short period of time can have the potential to dramatically impact, and even lower, your credit score.
    • Lenders can view excessive loan enquiries as an indicator of financial difficulty and the inability to properly manage your finances.
    • Read the fine print. You may think that you are just looking into a financial product, when in fact it can be a full loan application that will be recorded as a finance enquiry on your credit file.

Tips to help you increase your chances of getting a loan

  • Do your research first before applying for a loan. Check your credit score to help determine where and when you should apply for a loan.
  • Don’t put in multiple loan applications at once, and instead, put in one loan application and wait for the outcome, before submitting another.
  • Try to only apply for finance when you really need it.
  • If a finance enquiry has been listed on your credit report in error, be sure to investigate it, either yourself or by using a free service, and see if it can be removed.

    Read on:

    When you apply for a loan, credit providers check your credit history to help them decide if you are eligible to borrow money from them.

    When checking your history, they will likely look at the number of recent credit enquiries.

    What is a loan enquiry?

    When you apply for a loan or credit, you will often authorise the lender to access your credit file to determine how much risk they’d be taking on if they lent you money. Each time a lender checks your credit report, a credit enquiry is recorded to document your application with that lender. Basically, a credit enquiry on your credit file documents the date you applied for credit (whether it’s credit cards, a home loan, car loan or other) and a few other key details.

    There are two main types of credit enquiries:

     

    Soft Enquiry

    A soft enquiry is recorded each time you check your own credit file. This doesn’t tend to have much of an effect on your credit score.

    Hard Enquiry

    a hard enquiry is documented each time a third party checks your credit file. This is usually a lender or someone offering a type of credit, for example, a credit card or car loan application.

    When a credit provider accesses your file, they do so through a credit reporting agency. Credit reporting agencies maintain a database of relevant details relating to each person who has applied for credit. It’s this data that forms your credit score. The credit reporting bodies in Australia are Experian, Equifax and Illion.

    How does a credit enquiry impact credit score?

    If you have multiple credit enquiries on your file over a short period of time, it will likely negatively impact your credit score.

    A credit enquiry is added to your file every time a credit provider checks your credit report. If your report shows it has been checked multiple times, it may give the impression that you’re desperate for a loan and have been rejected by other providers, or that you cannot effectively manage credit products.
    While your report doesn’t show the outcome of each credit enquiry, it is assumed that if there are many around the same time, they have ended in rejection. For this reason, having multiple credit enquiries will most likely lower your credit score.

    What information is listed in an enquiry?

    Each credit enquiry contains the following information in your credit report:

    • Who the lender is
    • Loan or application number
    • The capacity you’re applying as — for example, sole borrower, co-borrower or guarantor
    • Credit amount
    • Type of credit — for example, car loan, credit card or home loan.

    How many credit enquiries is too many in Australia?

    There are no set rules when it comes to how many credit enquiries are too many. Some factors that are considered are which lenders you apply with and the amount of time between each application.

    For many of the major lenders, more than two enquiries in the last six months will likely be too many for them to consider accepting your application. Some lenders may even look as far back as the last two years and require an explanation for each enquiry made during that time. This doesn’t necessarily mean you’ll be rejected. Depending on your explanations, you might still be eligible for finance with them.

    Other lenders who offer second chances at applying for finance (like Finance One), tend to use a more holistic assessment process when deciding if you’re eligible. For loan applications with Finance One, the number of credit enquiries on your file may not affect the approval decision all that much, because we specialise in offering loans for bad credit.

    How long do credit enquiries last in Australia?

    Each credit enquiry stays on your credit file for five years from the date it was documented. As we’ve just discussed in the previous section, most lenders are only interested in the last 6 months of enquiries. So if you have lots of credit enquiries on your file from more than a year ago, they generally shouldn’t cause too much of an impact on your credit application.

    When is a credit enquiry recorded on a credit report?

    A credit enquiry is documented on your credit report each time you apply for credit. The term credit extends much further than just loans and includes things like:

    • Applying for a home loan, car loan, personal loan or business loan.
    • When you apply for credit cards or store cards.
    • Purchasing household goods on interest-free terms.
    • Applying for a phone or internet contract.
    • Signing up for utilities such as gas and electricity.

    It’s important to remember that a credit enquiry is documented specifically for products and services offered to you on credit. This means prepaid phone plans or Visa debit cards generally do not need a credit enquiry because these services are used on a pay-as-you-go or prepaid basis. A Visa debit card is accepted everywhere a Visa credit card is accepted, but unlike with a credit card, you are not using credit and instead you’re spending your own money.

    Is it possible to not have enough credit enquiries on my credit file?

    If you have never applied for a loan, utilities or telecommunications contract, your credit file would likely have nothing to show. This can sometimes work against you when applying for a loan, as the new lender has no way of knowing how likely you are to repay the loan in accordance with the terms of the contract.

    Applying for a small credit limit and keeping on top of repayments in accordance with the credit contract can be used as a tactic to help boost your credit score. However, applying for credit just for the sake of building your credit report could be a dangerous game to play — especially if you can’t effectively manage the repayments pursuant to the terms of the loan.

    Can I reduce the number of credit enquiries on my file?

    If you have several enquiries documented for just one application, get in touch with the lender, and they may be able to help you correct it if they were made in error. However, if the enquiries are all correct and legitimate, there is nothing you can do to remove them. A credit enquiry can only be removed it is found to be made in error.

    There are other steps to take that may help you improve your credit file:

          • Don’t apply for credit often. If you’re shopping around for loans, decide which one fits your needs best before applying. Applying for many loans at a time or close together will see multiple hard enquiries listed on your file. As discussed above, this may have a negative impact on your credit score
          • Keep on top of repayments and bills in line with the terms of your loan contract. Overdue accounts can lower your credit score, so it’s a good idea to pay your contractual amount on time, every time.
          • Don’t apply for credit often. If you’re shopping around for loans, decide which one fits your needs best before applying. Applying for many loans at a time or close together will see multiple hard enquiries listed on your file. As discussed above, this may have a negative impact on your credit score
          • Pay off outstanding debt. Repaying old debts in full tends to show lenders that you are more likely to be credit-worthy.

          Can I apply for a loan if I have too many credit enquiries on my credit report?

          If you have a bad credit score or a large number of credit enquiries on your credit report, it doesn’t mean you’ll be rejected everywhere. At Finance One, we look at various factors and don’t place too much of our decision on your credit report. We offer finance to help give a second chance to those who need it, which means we’re willing to work with you to build your future, rather than getting hung up on your past.

          If you are looking for a trustworthy lender and you have experienced a bad credit history, contact Finance One today. Our highly experienced staff can discuss your options with you to help you achieve your financial goals.

          Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.

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    WRITTEN BY

    WRITTEN BY

    Makala Elliott

    Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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