Did you know that shopping for credit has a detrimental influence on your credit score? It’s true! The lender will check your credit report to determine how much debt you already have when you apply for new cards or loans. If you have a lot of enquiries on your report, it might suggest that you are a risky borrower and result in a lower credit score.
Shopping around for credit can affect your credit score in several ways, but with proper understanding and careful management, you can minimize the negative impact while still finding the best rates.
What is credit shopping?
Each time you apply for credit and your credit report is accessed by a credit provider, a credit enquiry is added to it. A high number of enquiries made in a short period of time is viewed negatively by lenders and credit providers as it may be an indication of financial strain. This might have an impact on your ability to get loans as it looks like you are shopping around for credit.
For example, a hard credit enquiry can have an impact on your credit scores for a short time. However, improving the overall picture of your credit file may help minimize the effect.
Impact of hard enquiries
When you apply for credit, lenders perform a “hard enquiry” on your credit report. These enquiries can affect your credit score in the following ways:
- Each hard enquiry may reduce your credit score by a few points.
- Multiple hard enquiries for different types of credit in a short period can have a cumulative negative effect.
- Hard enquiries remain on your credit report for up to five years.
However, the number of enquiries on your credit report is only one piece of information that a lender may take into account when evaluating your credit application. Lenders look at a number of factors when making decisions. It may consider whether you have paid your bills on time if you are an existing customer of the credit provider (or made loan repayments).
Can you remove hard enquiries?
You can’t get a legitimate enquiry off your credit report. In most cases, you’ll have to wait five years before being able to remove it. They are then deleted from your history after this time has elapsed. In general, the only information on your credit report that may be deleted are those that are wrong or misleading.
If you have a fraudulent enquiry on your credit report then Clear Credit Solutions can help to remove this off your credit report. We understand the importance of good credit rating, and our team of experienced professionals will work quickly and efficiently to remove any fraudulent enquiries from your report.
Minimising the impact of credit shopping
In order to minimise the effect of credit or rate shopping on your credit score, make sure that you:
- Conduct all your credit shopping within a short timeframe, ideally within 14 days.
- For credit cards or loans, use prequalification options when available, as these typically result in soft enquiries that don’t affect your score.
- Be mindful of the number of credit applications and their impact, especially for different types of credit.
By understanding these factors and shopping wisely, you can find the best rates while minimising the impact on your credit score.
