Enquiries and Your Home Loan

Too many questions can delay your loan applications. Don’t enquire about a single home loan product until you understand what each enquiry does to your credit score. You don’t want the dreaded six months check to turn up a bad result.

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Too Many Enquiries May Prevent You from Getting Home Loan Products

Every time you apply for a loan you leave an enquiry on your credit report. Lenders leave these enquiries even if the loan is unsuccessful. Some even create enquiries when all you did was ask about borrowing rates. Unfortunately, too many enquiries can stop you from getting a home loan.

Each enquiry is present on your credit report for five years. Most enquiries past the one year mark should not hinder your loan application.

What Information Does an Enquiry Record?

Each enquiry you create contains several details. These include the following:
• Personal information, such as your name and address
• The amount you applied for
• Your status on the loan, such as principal or guarantor
• The type of loan
• A unique reference number

Note that the enquiry does not say if the loan application was successful.

Six Month Check

When lenders see many enquiries on your credit report they become wary. Too many state that other lenders have reasons for rejecting your applications. Thus, your credit score gets lowered, making it even harder to get a home loan.

Most lenders prefer that you have at most two enquiries during the last six months. Others may be more stringent. It is not unknown for lenders to ask about enquiries from two years ago.

The key is you should avoid applying for any loans six months before starting a home loan application.

What Creates an Enquiry?

You create an enquiry whenever a lender accesses your credit report. Examples include the following:
• When applying for a vehicle, personal, or home loan.
• Getting finance for home goods.
• Applying for credit cards.
• Creating internet and mobile phone contracts.
• Starting a new contract with a utility company.

Each of these creates an enquiry on your credit report. Too many in a short period can cause issues with securing home loan products.

What Doesn’t Create Enquiries?

There are some financial actions that don’t create enquiries. The following don’t need access to your credit report:
• Buying a phone on a prepaid contract
• Closing credit lines and loans
• Changing the type of an existing loan
• Creating a new account with a bank
• Getting a new VISA debit card

As these actions don’t involve credit, providers don’t access your credit report.

Should You Avoid Enquiries Completely?

Avoiding enquiries creates its own problems. Having no credit record can cause issues when applying for a home loan. This is because lenders have no record of your reliability when paying back loans.

If you have no enquiries, you may only be able to open credit cards with small limits. You may have to take home loan products off the table until you build up a credit history.

On the plus side, it doesn’t take long to build a credit history. With a small credit line, or a mobile phone contract, you can show your ability to repay loans. After a short time, lenders will lower the risk attached to you.

What is a Shopping Pattern?

“Shopping pattern” is a financial industry term. Lenders use it to describe the types of loan and credit a borrower has applied for.

Someone with several credit card applications in the past year has a risky shopping pattern. Those who show more stability in their lending have low risk patterns.

To secure a home loan, you should aim for a low-risk shopping pattern. Avoid payday loans and loans from similar, less reputable sources.

Can You Get A Loan With Lots of Enquiries?

A lot of major lenders won’t lend to those with a lot of enquiries on their credit reports. There are specialist lenders who will. It is best to talk to an expert to find out more. A professional, like an adviser from uno, can expand on the general information in this article.

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Alexi Neocleous

With over 20 years experience, Alexi has written extensively a wide cross section of financial topics. These topics range from financial planning, mortgages, property commentary and all points in between.

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