Too many credit enquiries can negatively affect your ability to get loan approval. Here's what you need to know reduce these black marks and improve your credit score.
Whether you want a shiny new credit card, a car loan or a mortgage, your credit file plays a crucial role in the application process. Lenders use details of your credit history to help them determine your eligibility for loan products – including the number of enquiries that have been made on your file.
These credit enquiries stay on your credit file for five years, so if you have too many credit enquiries on your file in a short amount of time, it can negatively impact your credit score and your ability to get the card or loan you want. Here, we look at what credit enquiries are, your options for removing them or reducing them and what else you need to consider to optimise your credit file.
What is a credit enquiry?
There are two main types of credit enquiries: "soft" enquiries and "hard" enquiries. A soft enquiry is recorded any time you request a copy of your credit file, and doesn't really have an impact on your credit score.
A "hard" enquiry refers to any request for your credit file that's made by a third party, such as a lender. For instance, every time you apply for a line of credit, such as a card or personal loan, the lender you've applied to will submit a request for your credit file. This request is recorded on your credit history as a "hard credit enquiry". While a few of these enquiries is usually fine, too many hard enquiries on your credit file can suggest to lenders that you are not able to manage credit accounts responsibly, and may lead to a declined application.
How do I know if I have "too many credit enquiries"?
If you're concerned about the number of enquiries on your credit history, the first step is to get a copy of your credit file. You can request a free copy from each of the major credit reporting bodies (CRBs) once every year. When looking at these details, it's important to note that it's not so much about the total number of enquiries, as it is about the time between them. Less time between credit enquiries increases the chances that they will have a negative impact on your credit score.
For example, if you have applied for five credit cards in a period of three months and have five hard enquiries as a result, it is likely to be considered as a negative detail on your file. In contrast, having five hard credit enquiries listed over a period of five years, may have less of an impact.
Can I remove an enquiry from my credit file?
You can't remove a legitimate enquiry from your credit file. In most cases, you will simply have to wait until five years has passed and they are taken off your history.
In general, the only details that can be removed from your credit file are those that are incorrect or erroneous. For example, if a lender made an enquiry without proper authorisation from you, if your name was attached to an account you never opened, or if an account was incorrectly listed as "in default". In these cases, you can submit a request to have the incorrect details removed from your file.
How to remove incorrect details and enquiries from your credit file
- Review your credit file. Start by getting a copy of your credit file, and go through all the credit enquiries and other details on record. Count the total number of enquiries and reference against the enquiries you know you have made (ie. loan, utility and card applications). Flag any enquiries that are unfamiliar or which you can't recall approving.
- Follow up on unfamiliar enquiries. If you have identified an enquiry you don't remember approving, then now's the time to contact the lender associated with it. Find out what the enquiry was made for and why to establish whether you approved it or not. Note that sometimes you can give approval simply by ticking a box on a form. For example, if you consent to receiving credit limit increase offers on your credit card, and then accept an offer, it could lead to a new enquiry on your credit file.
- Submit a request for incorrect details to be removed. If you have followed up on unfamiliar enquiries and still feel that authorisation was not properly given, you can submit a request to the credit reporting body to have it removed. Make sure your request is to the CRB who provided you with your credit file, as details may vary between them. For example, if you got your credit file from Equifax, you would submit a request to Equifax to have incorrect listings removed.
- Wait for an outcome. The CRB will then review your request and the details, before providing you with an outcome. If you are unsuccessful, the listing will remain for the allocated time (eg. five years from when an enquiry was made), and if you are successful it will be removed.
Alternatively, you may want to seek help from a company that offers credit repair for a fee. These organisations may be able to help you find and remove incorrect listings from your credit file, but it's important to note that they won't be able to help remove any legitimate credit enquiries or details on your file.
What should I consider when trying to improve my credit file?
Improving your credit file takes time. But you can start optimising it by following the tips below:
- Limit new applications. You can keep the number of credit enquiries on your file down by only applying for cards, loans or utilities when it's necessary. Applying for one account at a time, and waiting a few months between applications will also help keep your credit enquiries to a minimum.
- Pay your accounts by the due date. Information about late payments can also have a negative impact on your credit file, so always aim to make repayments by the due date on your statements.
- Settle outstanding debts. If there are debts you can afford to pay off now, doing so could help show lenders you are responsible with money.
- Close old accounts. Go through your credit file and check to see whether there are any accounts that are still open that you don't currently use. For example, an old joint electricity account from a sharehouse. Closing these or removing your name from them will ensure that only current, relevant details are on your credit file.
What can I do if a provider declines my application?
Credit repair takes time, so if you have followed the steps and tips above and still receive an unsuccessful outcome on your next card or loan application, be patient. Aim to wait around six months before submitting another application, and carefully review your options and eligibility when you do. These steps can also improve your chances of getting approved.
In the meantime, you may also want to consider contacting the lender that declined your application to see if you can find out why. Most lenders won't provide a specific reason, but it doesn't hurt to ask.
Removing incorrect details and enquiries from your credit file can have a positive effect on your creditworthiness, but it is not a solution for any legitimate details recorded on your file. Make sure you consider this fact before seeking the services of a credit repair company, and consider your other options for improving your credit file so that you can increase the chances of approval in the future.
Frequently asked questions
How long do credit enquiries stay on my credit file?
Credit enquiries stay on your credit file for five years. Mentions of defaults also stay on your file for five years.
I have a default showing on my credit file that I still haven’t repaid. How can I get it removed?
You cannot get a lender to remove a default listing until you pay the arrears. Once you pay what’s due, the same finds a mention on your credit file, but mention of the default stays on file for five years.
I contacted multiple credit repair companies and they told me they can’t help. What can I do?
If credit repair companies have declined to offer assistance in your case, you should start by trying to get your finances on track. If you have existing credit cards and/or loans, try to repay them in a timely manner or speak to the creditors and try to work on alternate payment plans. Try to save some money in a savings account every month or term deposit account to help build up your assets. These steps would have a positive bearing on your financial health in the future.