Your credit score can have a big impact when you’re applying for new accounts or loans.

Whether you’re applying for your first home loan or switching mobile providers, your credit score can have a big impact. Here’s how.

Why your credit score matters when making applications

Did you know that your credit score affects loan applications?

Creditors and lenders can, and often will, sneak a peek at your credit score and credit report, alongside their own lending criteria, before they make a decision on your credit application. If you’re trying to get a better deal from your existing lender, your credit score also matters. And how often financial service providers contact a credit bureau, such as Equifax, to request your credit report can have an impact on your credit score.

Why is this? Well, first your credit score itself is determined based on the information held within your credit file by the bureau. Information such as credit enquiries - how many applications you’ve made and over what period – is captured. Even if your credit score isn’t brought down by too many applications, those applications will become a part of your credit history and remain there for 5 years.

Why are too many applications for credit seen negatively?

Too many applications for credit can be viewed as a sign that you’re struggling financially. Providers may worry you’re taking on too many new accounts or “churning” credit cards – that is, applying for new cards to take advantage of low balance transfers or other sign-up offers. A card issuer may reject your application if they think you’ve applied for too many other cards recently, even if you didn’t take up those offers.

An Equifax Credit History study of over 1,000 Australians [1]. found that in the 12 months prior to September 2018, 60% of Australians had made at least one account application or account switch that could have included a credit history check. Over one in four (27%) had specifically applied for a loan or credit card in the last 12 months.

With the same research showing that 40% of Australians feel anxious about their finances and 27% are worried about their level of debt, it’s timely to reassure you that it’s easy to make positive financial changes without worrying it’ll affect your credit score long-term.

Which applications or switches count?

Changing providers

These changes typically involve a credit check:

  • Switching your mobile phone service

  • Switching utilities or internet service

  • Switching your financial institution or mortgage lender 

Completing applications

The following applications almost always involve a credit check:

  • Applying for buy now, pay later finance

  • Applying for a credit card

  • Applying for a personal loan

  • Applying for a mortgage

  • Applying for a balance transfer on credit card

  • Applying for a car loan

  • Applying for a new mobile plan

What can you do instead?

It’s always smart to make new applications only when required.

When you’re considering opening new accounts or changing providers, do your research first and decide on your chosen provider before applying to them, as opposed to applying to a range of different providers. You should avoid making any new applications if you’re getting your finances organised to make a major loan application, such as a home loan or a business loan.

The good news is, so long as you’re responsible with your loan repayments (i.e. meeting your regular monthly repayments every month) these actions may positively influence your credit score over time.

Understanding the key factors driving your credit score can help you understand how you can improve your credit score. It’s worth taking the time to do this, as your credit score can have a big impact on your ability to achieve major financial goals such as buying your first home or investment property.

Knowing and understanding your credit score is an important part of staying on top of your finances. Your credit score is what some lenders may look at when deciding if you’re a good loan risk. Make it a habit to monitor your credit score for FREE regularly.

1 Report: Equifax – Credit History, September 5, 2018.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser. 

GetCreditScore Pty Ltd (GCS) ABN 96 169 886 891, Australian Credit Licence 501455.