Does a Credit Enquiry Affect your Credit Score?

If you have already applied for credit, then you may have noticed that a credit enquiry was recorded on your credit report.

Credit enquiries or checks are necessary for lenders to gauge your creditworthiness. They can also help you understand your current financial situation so that you can apply for new credit products accordingly.

But does a credit check affect your credit score? Let's find out.

A credit check or a credit enquiry is a search that’s run to look at the information on your credit report with the goal of better understanding your financial behaviour.

In particular, prospective lenders are eager to find out whether you pay your current lenders on time and in full. For example, if you have a personal loan with your bank, the lender doing the search will find out whether you diligently pay your instalments or not.

When you apply for a big financial commitment like a credit card, loan, or lease, the lender will first check your credit report to decide whether you are the right applicant or not. This, in turn, allows them to pull credit reports from any of the major credit bureaus. While these organisations or companies don’t always need your consent to ask the credit bureau to see your credit report, they do need a legitimate reason to do so.

Organisations that can conduct credit checks on you for several reasons, include:

• Banks when you apply for any credit product, such as a loan or credit card.
• Retail outlets when you take out a store card with them.
• Insurance providers when you take out new insurance, such as car insurance.
• Loans and credit card providers when you open an account or borrow money.
• Prospective employers as part of your job application (if you work with money).
• Mobile service providers when you apply for a cellphone contract.
• Estate agencies & private landlords before drawing up your lease agreement.

As part of the credit check, they can see whether you have paid back your previous or existing credit issued to you, how much credit you already have, and how well you are managing it. They may also look into any financial associations if you have any joint accounts or loans.

If you would like to find out more about credit enquiries, you can read our article about understanding credit checks. It will go into more detail about what an enquiry entails.

While a few credit enquiries may have absolutely no effect on your credit score, multiple checks over a six month period can leave a noticeable mark.

The damage done to your credit score usually disappears over time. It will remain on your report for two years, but it will only affect your credit score for one year.

That means that if you apply to several lenders during a short period of time, it could have a significant impact on your credit score. Multiple enquiries will make lenders assume that you are a high-risk applicant. It can suggest that you’re struggling financially or that you have too much debt.

Therefore, it’s best to avoid applying for multiple loans or credit cards at the same time. Moreover, you should also read through the eligibility requirements for every new credit application. It's best to apply for only products that you’re confident about getting approval for.

Once recorded, a credit enquiry will remain on your credit report for two years. This means that any organisation that views your credit report will be able to see which enquiries were made before them.

For example, if you applied to several loan providers during the same week, then the next loans provider you approach will be aware of this. In fact, this is why enquiries are there. It warns lenders when you appear to be desperate for credit, which can be a warning sign that you may not be able to meet your monthly repayments.

If possible, try to spread your enquiries out so that new lenders will only see a reasonable number of enquiries over the last two years.

Don’t apply to multiple lenders at once

Applying for multiple loans or credit cards at once can hurt your score, especially if you don’t have a good enough score to be approved for all of them. It's important you keep a gap of 30 to 90 days before applying to new credit products.

Adopt healthy credit habits

Focus on adopting healthy credit habits in order to build your score. You should make your repayments on time, maintain an optimum credit utilisation ratio, and avoid going over your credit limit.

Regularly check your credit score

Checking your credit report should be a part of your monthly routine. Keeping an eye on your credit file allows you to clearly see how credit enquiries affect your credit score. You can also look out for any errors on your report that might be affecting your score.

You can log in and view your credit report as often as you’d like – and it won’t impact your credit score. It doesn’t count as an enquiry because you’re viewing your own report.

ClearScore provides you with a free credit report that you can use to check your score. Once you join ClearScore, your credit report is shared with you along with personalised insights about your credit score.

Here’s how you can get started:

• Sign up and create an account on ClearScore by entering your email address
• Add your personal information including your name, date of birth, and address
• Verify your identity by providing more information, such as your ID number or passport number.
• Get access to your credit report and details about your recent enquiries.

Credit enquiries can quickly become a big challenge – especially if you have racked up too many of them and you’re still trying to build your credit score. This is why you should check your free credit report routinely and review all the recent enquiries that have been made.