Too Many Credit Applications will spoil the Broth
There are of course a plethora of things that can negatively impact your credit score, and one of those is the number of times you make an application for credit. The question is though, how many is too many?
Irrespective the type of loan you seek – mortgage, store card, credit card, loan, overdraft, for each and every time you apply for credit, the prospective lender will have a poke through your credit record.
If you’re applying for a car loan or even for home insurance, normally a search will be done on your file.
And what each of these searches does is to leave a ‘mark’. That ‘mark’ can be seen by a future prospective lender.
Lenders search through your credit record in order to assess how you’ve handled credit in the past. Once they’ve made their assessment, they will make a decision on whether to provide you with a green light, or turn you down, without so much as a valid explanation as to their reasoning.
What’s the problem in making multiple applications?
Lenders generally take a dim view on multiple credit applications being made within a short span of time.
The reason for this is that it creates an impression that you are pretty darn desperate for funds. Are you an avid online poker player who’s been on a recent losing run?
In which case, lenders will sense that you’re less capable of being able to manage debt in a timely and sensible manner.
Whether this is the truth or otherwise, it matters not. The evidence unfortunately speaks volumes in this case.
Potential lenders will view you as a risk and on that basis, they could turn down your loan application. And there’s even more chance of that happening should your previous credit applications have been declined.
There is another side to this scenario, however. Some lenders will be more than happy to grant you a loan. There are a couple of reasons for this:
- They see you as a potential liability and thus believe that there’s a reasonable chance you’ll default on repayments. This way, a lender can in fact make more income from you – potentially a lot more.
- The lender will offer you a far higher rate than normal with the hope/ knowledge that you’re desperate enough to take it. Thus, the lender will earn far more in interest payments at your expense.
How long should you wait?
Ideally, you should leave a few months between making applications for credit. Or, at the very least, don’t be tempted to apply for two lines of credit simultaneously.
There is, in fact, no hard and fast rule to govern the number of credit applications made which will serve to push you into the realms of being judged an unreliable borrower. After all, each lender has in place a different set of criteria.
All the same, a few, sensibly spaced out applications for credit noted on your record is far better than none at all. A lender will judge you on having prudently and diligently handled credit in the past, and in which case, they will be more likely to work with you on a loan.
If you have no credit record because you’ve never previously applied for a loan, lenders have no information on which to base their decision. Given this scenario, they will be less likely to give you the thumbs up.
Is there a best time to make an application for credit?
The time to apply for credit is when you are financially stable. An example of this is when you are in a stable line of employment and have lived at a fixed address for at least a few months, and you are listed on the electoral roll.
How long does information remain listed on your credit report?
Your credit record will retain information like multiple credit searches over a short time span, late repayments, and County Court Judgments (CCJs) (in Scotland, a CCJ is referred to as a decree) for a period of six years prior to being wiped clean.
It’s not all bad, though. In contrast, your credit report will reflect positive information such as making repayments in a timely manner on a permanent basis.