Am I lowering my credit score with all my loan applications

These days with debt collectors hot on the heels of bad payers, blacklisted individuals and others that are way in over the heads with debt, South Africans are afraid of their credit score ratings.

One of the questions that they’re asking themselves is whether having multiple loan applications on record will affect their credit score. There are many reasons to fear a bad credit score, but the good news is that having multiple loan applications isn’t necessarily one of them! However, there are a few things to consider regarding the approval outcome despite your credit score and having all this information will certainly prepare you for the process when applying.

Something to be mindful of…

Lenders do have a record of how often you have applied for a loan and how many loans you currently owe repayments on. While this isn’t going to have them running for the fire alarm in the building, it’s still perhaps a little questionable. In this instance, they would make an inquiry into the loans on your name and ensure that you are in fact meeting your payments and that there is enough reason to trust in the fact that you are a good payer and can handle the debts you are signed into. This process is called “Footprinting”, and it will allow the lenders to make an informed decision on approving your loan application.

Looking at short-term vs long-term applications

In the event that you are applying for a multitude of short-term loans with a not-so-hot credit score, you are begging for the lender to look further into your applications and you’ll most likely be treated in exactly the way you’re expecting to be – cautious. Remember, lenders are in business to make money, so they want to afford you the opportunity to take out a loan, however, if you and your tapping, knee and fidgety hands come in portraying “risk” all over the show, it’s likely that you won’t receive the desired approval for your loan application, either that or your interest rates are going to be undesirably high. So be mindful of this process, it’s not as straightforward as “I’m desperate for a loan, please help me!”

Then there are the longer-term loans which, in theory, call for serious homework done. You wouldn’t submit a loan application to just one lender if you were applying for a home loan for example. That said, when lenders pick up on a plethora of applications for Mr Adams Apple for his new dream home, they are not too concerned. In actual fact, it brings about a fair amount of competition, as these lenders want to be the ones to secure the loan with you.

Something to remember…

• Your credit score is one contributing factor to the decision made by the lending company you have applied at. Your score will merely give an indication of what your credit report all consists of.

So, what will impact my credit score?

The prime factors that could potentially impact your score negatively, will be the obvious things luckily! This means that you already know if your credit score would be or has been affected. If you’re missing repayments, this will count against your score. Late repayments are a big one too! However, always remember that late payment is better than NO payment at all. Even though you’re making the repayment late, defaulting on your account is far worse and heavily impacts your credit score. Another point to note regarding defaulting on your account is that it remains for all lenders to see for 5 years. Ouch!!

Each lender has its own set of terms and conditions when it comes to defaulting on an account, to ensure that you don’t ever have to find out.

Lenders don’t have time to manage raised concerns from missing a payment or late repayments, especially if it’s a trend, therefore the system tags your credit score with all of these credit errors when they occur, ergo your score is influenced.

One of the other contributing factors that deems you a credit risk is (ironically), not having ever borrowed money! The truth is, how would a lender determine what type of player you are without any validated history or aged accounts to reflect this? Kind of makes sense when you look at it that way doesn’t it? If you are concerned about getting into debt, though, then do something relatively minor and safe like opening a clothing account or applying for a credit card for rainy days. Follow that by making a few purchases over a few months, meet your payments and this will already count in your favour!

Don’t feel completely deflated if you have done any of the above mentioned negative things or not done in some cases, as there are many ways in which to assist you in getting your credit score back on track and looking healthy for any future lending!

Lastly a few tips!

• Make sure you aren’t applying for too much in too short a space of time
• Apply for some credit if you don’t currently have any to contribute to your score
• Try having one aged account that reflects long-term repayment habits.

Late repayments are better than missed repayments!