April 7, 2017
When it comes to home loans, following the advice “Never put all your eggs in one basket” could be costly. Why? Well, researching the market is logical, applying for more than one home loan can hurt your credit score.
The home loan market is extremely competitive, so, it is important to consider all the options available to you before committing to one you like. Conducting researching will help you to narrow down which lender and product suits you and your personal and financial circumstances the best. While it can be tempting to “hedge your bets” and apply with multiple lenders, doing so will negatively affect your credit score.
Some borrowers view applying for more than one home loan as a smart tactic, believing that if their application is turned down by lender ‘a’, then there back up lender will pull through. This tactic is like putting your eggs in many baskets, which can get very messy.
If you submit an application for a number of home loans to multiple lenders, then your credit score is adversely impacted. Subsequently, your lender may decline your application for credit. This situation occurs because many lenders view simultaneous credit applications as negative behaviour. Lenders also see a borrower with multiple applications as higher risk as it looks as though the borrower is not confident of securing a loan.
Lenders who offer very competitive rates, typically search for borrowers who have excellent credit scores and good financial history. Applying for many home loans lowers your credit score, and you may miss that super low rate.
A credit score is a rating of your financial soundness. It is illustrated as a number that represents the data contained in your credit file.
Your credit document records certain dealings with credit suppliers and contains a history of overdue debt, defaults and credit applications. You will have a credit record if have applied for a credit card, loan or a cell phone plan inside the previous five years.
Essentially, your credit rating endeavours to give a representation of how monetarily capable, or risky you are. This is important because lenders will consider it as a part of their application assessment to decide if they will lend to you or not.
Organisations such as getcreditscore.com.au can give you free access to your credit score, and an increasing number of Australians are utilizing these tools to check where they remain before applying for or arranging a home loan.
According to financial experts, the number of multiple home loan applications made is on the rise. Some borrowers aren’t even submitting multiple application intentionally. Many borrowers conduct their research online and make a comparison. Hence, if they find a loan they think is ideal, they fill out their information and submit an enquiry. Now while this seems harmless enough, this enquiry is an application for credit. As a result, this situation can create havoc for a potential borrower as they don’t know it can harm them financially. Let’s look at an example.
Ben and Jane wish to buy a home. Accordingly, they start doing research online for the best rate. Jane finds three outstanding home loans with low rates, an offset and redraw facility. After reading the blurb about each loan, Ben fills in their details to find out more about each product. But, the couple has no idea they’ve submitted a loan application.
Before a lender takes on a new borrower, they assess their risk. Consequently, the only way they can evaluate this risk is to look at a potential borrower’s credit history. When this credit history shows multiple loan applications, then the lender automatically assumes a credit decline occurred. Therefore, they start to question a borrower’s ability to repay their mortgage. Don’t let this be you. Instead, review your credit history to see what the file contains, and don’t submit your financial information online.
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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