As you may already be aware, your credit score is an important indicator of your creditworthiness. Whether you want to apply for a home loan or get a new credit card, having a poor credit score can adversely impact your chances of approval. Even if your application is approved, you may be offered a higher interest rate than borrowers with a good credit score.
On the bright side, maintaining a good credit score shouldn’t be difficult once you understand the various factors that impact it. Under the comprehensive credit reporting system, both negative actions and positive behaviours are listed on your credit file and factor into your credit score. So, not paying your utility bills on time or missing your credit card or loan repayments will be listed as a default on your file. Similarly, positive behaviour, like paying your bills promptly, will be recorded on your file also.
It also helps to be careful when shopping around for a credit card, or any type of loan. Making too many applications for credit in a short period may lower your credit score. That happens because an ‘inquiry’ is added to your report each time you apply for credit and the credit provider 'pulls' out a copy of your report to check your credit score. Such inquiries can stay on your report for up to five years.
While a few inquiries spaced over a reasonable period of time may not make a huge difference, too many hard inquiries may indicate that you're in some kind of financial trouble, which could be a red flag for many lenders. Once a lender perceives you as a greater risk, they may offer you a higher interest rate or even decline your credit application in some cases, which could hurt your credit score further.
However, it's worth knowing that not all credit inquiries affect your credit score in the same way. It may help to learn about the various types of credit inquiries and how they impact your credit score in order to maintain a high credit rating.
Do credit inquiries impact my credit score?
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This article is over two years old, last updated on August 4, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent credit score articles.
Types of credit inquiries
There are two main types of credit inquiries – soft inquiries and hard inquiries.
- Soft inquiries
Soft inquiries don't generally impact your credit score. A soft inquiry is recorded when you request a copy of your credit report or a potential employer carries out a background check before employing you. Pre-qualified credit card, loan, and insurance offers also constitute soft inquiries. However, it is considered an application if you accept the offer.
- Hard inquiry
A hard inquiry, or hard pull, is recorded when a third party requests your credit file. For example, each time you apply for a loan or credit, the lender will most likely submit a request with one or more of the credit bureaus for your credit score. Such hard inquiries could hurt your credit score by five or 10 points each time you apply. While this may not seem like much, the numbers can quickly add up when you make successive credit applications, resulting in a lower credit score.
What happens if I have too many credit inquiries on my file?
If you have several hard inquiries on your file in a short period, it could impact your credit score adversely and even lead some lenders to believe that you're in some kind of financial difficulty.
If you're wondering about the number of inquiries listed on your file, you may request a copy of your file from one (or all) of the credit bureaus and go through it for details. You might also find it helpful to sign up for credit score alerts to get notified whenever there's some change on your credit report.
Once you receive your credit report, go through the number of listed inquiries and the time between them. Usually, the farther out they're spread in time, the better it is for your credit score. It's also possible that you find an entry that you cannot remember. While it isn't that common, it's possible for erroneous information to be listed on your credit report, and you can submit a request to have such entries removed from your file.
How long does a credit inquiry stay on my file?
According to the website of the Office of the Australian Information Commissioner, credit inquiries stay on your file for five years. Additionally, your repayment history stays on your file for two years, and payment defaults will remain on the file for five years.
It's usually helpful to research and carefully compare your options before making multiple applications for credit, such as applying for multiple credit cards at once. For instance, you may compare credit card deals from multiple credit providers online to check the interest rate and fees and whether you meet the eligibility criteria before applying for one.
Can hard inquiries be removed from credit reports?
You'll have to wait for five years for hard inquiries to be removed from your credit report unless there's an incorrect entry, which you have the option to dispute. Generally, you can only have those details removed from your file that are erroneous or incorrect. For instance, if your name shows up on a credit account you never opened, you may submit a request for eliminating the incorrect details from your file.
Australian Securities & Investments Commission (ASIC) warns consumers about companies that claim to clean up your credit file or fix your debt. Paying a credit repair firm is unlikely to improve your credit. Additionally, such firms might charge you high fees for removing incorrect default listings, which you can easily do yourself for free.
The process of credit card inquiry removal is pretty straightforward if you're disputing incorrect listings on your file. Here are three simple steps for removing incorrect inquiries from your credit report.
- Step 1
If you're concerned about your financial health, one of the first steps to consider is reviewing your credit report by ordering a copy online from one or more of the credit bureaus. Once you receive your credit report, spend some time going through it and flag any inquiries for credit or utility applications that seem unfamiliar.
It's also worth remembering that credit or utility providers can only make a hard pull after receiving your consent. While this could be as simple as checking a tick box on a form, if you find an entry you think you didn't approve, it's worth flagging it for the next step.
- Step 2
Once you've identified the unfamiliar inquiries, you may start contacting the associated credit providers, one by one, to verify whether you approved the inquiry or not.
- Step 3
After following up on the unfamiliar entries, if you still think you've had a credit default listed wrongly against you, or there's an inquiry listed that wasn't authorised by you, you can write to the credit reporting body and ask for it to be removed.
In case you aren't happy with the response, you may want to contact the relevant dispute resolution service for help, as informed by the concerned credit reporting body.
Questions you may have
How will debt consolidation affect my credit score?
Debt consolidation can affect your credit score, but a lot depends on your ability to repay the debt. Having too much debt, especially spread over different kinds of credit, can increase your chances of defaulting or failing to repay the money you owe. Consolidating your debts into a single credit product - at a possibly lower interest rate - is one way of lowering this risk. By paying off your debts, this positive behaviour may show on your credit report and you you may be able to boost your credit score. This is provided you can make timely repayments and not take on additional debt.
From a credit reporting bureau’s perspective, lowering the number of debts and reducing your overall indebtedness is seen as a positive move. To ensure the consolidation loan does not hurt your credit score, you may want to consult a financial advisor before starting the loan application process.
Can I check my credit score without a driver's licence?
In Australia, your driver’s licence is the preferred identification document among credit reporting bureaus.
Most companies that can provide you with your credit score accept some alternative forms of identification, primarily your passport or Medicare card. However, the recommended document is a valid Australian driver’s licence.
It’s highly unlikely that you’ll be able to confirm your identity using other documents, such as a proof-of-age card.
You’ll also need to provide valid personal details such as your name, date of birth, and residential address. If you’ve lived in your current residence for less than six months you may also need to provide previous home addresses.
You may have genuine reasons for not wanting to provide your licence details, such as concerns over identity theft. Some credit reporting agencies offer packages, at a cost, that include insurance against identity theft. Such packages may also include monthly credit score checks or alerts whenever your score is updated.
If you don’t have a driver’s licence, there’s a good chance that you haven’t applied for credit in the past and don’t have a credit score at all.
Can a debt collector affect your credit score?
When a creditor is unable to contact you by phone or by sending you a formal notice in regards to outstanding debt, they will often outsource the job to a debt collector. The debt collector can try to reach you by phone, or they can attempt to contact you face to face. If they cannot get through to you by either method, they can only report back to the creditor but not directly report a payment default to the credit rating agency. So, can debt collectors affect your credit score? No, they cannot do so directly.
However, if you owe money, you have an obligation to return it or communicate your difficulty in doing so to the creditor as well as to any involved debt collector. If they cannot contact you, they can report a serious credit infringement against you, which may affect your credit score for many years. Creditors can also take the legal route, and a court judgment against you can also severely impact your credit score.
You should remember that debt collectors need to abide by specific rules and cannot harass you by repeatedly calling or visiting you, or by threatening to confiscate your possessions if you don’t pay up. Similarly, they cannot threaten to file a default against you, especially with a credit bureau.
Does borrowing money affect credit score?
Whether it’s through a home loan, a personal loan, or a credit card, borrowing money will affect your credit score. Taking on a home loan or a credit card may have a positive impact on your score, but too many loan applications can bring your credit score down.
Every time you apply for credit, an inquiry is performed against your name. Too many inquiries can reflect negatively on your credit report, and if your loan application is rejected it will negatively impact your credit score.
How you handle your debt can also make a big difference. As long as you make timely payments you may be able to improve your credit score and overall creditworthiness. However, any missed or delayed payments will likely result in a negative impact on your credit score.
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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.
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