We’ve had customers recently who can’t get loans, but not because of adverse information on their credit file.
Yes, you heard me: These clients have credit reports with no obvious bad credit information, such as defaults, judgements or writs, yet their credit score is painfully low and they can’t get finance. I hear you say … what?
There is a sly culprit that creates this problem. Not many people talk about this problem, and misinformation online seems to exacerbate it. The culprit is the appearance of multiple inquiries on your credit file. I had a customer recently who had 15 of these credit score-destroying marks on her file. The amount of loans she could get? Zero.
What is an inquiry listing? An inquiry listing is put on a consumer’s credit file when they apply for finance with anyone who offers it. The inquiry listing could be placed by a big bank, credit union, car finance company, credit card company, telecommunications company – the list really is endless.
But why do these companies put these inquiry listings on credit files? Because when consumers apply for a loan, online or in person, they are asked to tick a box or sign that their credit file can be accessed to see if they are going to be a good loan prospect. And every time they sign or check that box, an inquiry listing will appear on their credit file.
Now, it’s no wonder consumers are dazed and confused about this being a problem, because we are encouraged to ‘shop around’ for virtually everything. Want a fridge? Well, you better check out your competitors and beat the lowest one down in price – this is the kind of mentality that reigns supreme in a competitive marketplace. And we do the same with finance. One 28-year-old guy I know keeps a keen eye on interest rates and jumps quickly to move his mortgage to a new credit provider at the first whiff that they will offer a better deal on his home loan.
And why not? We are all keen to save the hundreds or thousands of dollars a year that a better interest rate will provide. Better to spend those dollars on wakeboarding, travel, gifts for the family or eating out, right?
The online world we inhabit also encourages this behaviour. It gives us, at our fingertips, access to real live competitive interest rate information, as well as numerous benefits for jumping ship from your current lender to a new one. And lenders and brokers won’t complain about it, because it’s good for business.
My 28-year-old friend has not been affected by it yet, because the shortest time he was with a lender was eight months, and he immediately got a better deal with another lender. So one or two inquiries on a consumer’s credit file in a year won’t kill their score. But when it looks like they are shopping around for loans and failing, it's then that their score takes a big hit. And this can happen by simply applying for finance to too many lenders at the same time. Big. Red. Flag.
So, in my opinion, if consumers are seeking finance and are tempted to make multiple applications to multiple lenders at the same time, they should resist the urge. It’s better for them to make one application, and if it fails, seek to find out why. If it’s a credit file issue, there are excellent companies that can assist with the removal of wrongly placed defaults, judgements or writs.
Unfortunately, in our experience, credit repair companies ordinarily can’t help with multiple inquiry listings that are affecting a consumer’s credit score, because in almost every case, they have signed or ticked that box that gave permission to the lender to access their credit file and place that inquiry listing on there. So, prevention is better than cure.
Dr Merrilyn Mansfield is the lead adjudicator and researcher for Princeville Credit Advocates.
She is fascinated with the consumer laws that relate to credit reporting and in advocating for a consumer’s right to a correct credit report.