A credit check is an integral part of the loan approval process for most lenders. When assessing mortgage applicants, lenders can obtain the credit report from any of the three credit reporting bureaus operating in Australia, namely Equifax, Experian, and Ilion. These agencies gather and analyze information concerning Australian individuals’ credit transactions, encompassing debt acquisition and repayment. Lenders commonly prioritize examining the quantity and types of debts that applicants have previously incurred and their ability to make timely repayments.
What is a Credit Check?
A credit check, also known as a credit inquiry, involves an evaluation of your credit history. Two main types of credit checks are soft checks and hard checks.
A soft credit check, also called a soft inquiry, occurs when you check your credit. This type of inquiry does not harm your credit score or credit report. Instead, it is considered a responsible financial practice as it allows you to verify the accuracy of your personal and account information. Like reviewing your savings and investments, regularly performing soft credit checks is essential for managing your finances effectively.
A hard credit check, or hard inquiry, is conducted by lenders and requires your permission. When you apply for credit, such as a loan or credit card, hard questions are triggered. These inquiries are recorded on your credit report and may affect your credit score. It’s essential to be mindful of the number of complex queries you have, as multiple inquiries within a short period can potentially hurt your creditworthiness.
Your credit report, which contains confidential financial details, is safeguarded by the Privacy Act. Only the credit providers to whom you have applied for credit have access to your credit report. These may include banks, finance companies, lenders, mortgage insurers, mobile phone companies, and utility providers. To obtain your credit profile, the lender must submit a formal request.
Hard Inquiry Impacts
When a lender performs a hard inquiry on your credit report, it will be recorded in your credit file. This means that any future entity checking your credit will be able to see the existence of the hard inquiry.
Lenders can view the number of credit applications you have made and the type of credit you have sought. They utilize this information and other details in your credit report to assess your creditworthiness. Having a few credit inquiries on your credit report is normal and does not harm your credit score. However, having too many questions within a short period may indicate poor credit management. Limiting the number and frequency of credit applications to maintain a healthy credit profile is advisable.
It’s worth noting that pre-approval checks for home loans are an exception to this guideline since multiple inquiries may be necessary for a short period. However, frequent applications for credit cards and personal loans are not as needed, and routine applications in these areas have a more significant potential to impact your credit score negatively.
Regarding the duration of credit inquiries on your credit report, hard questions remain on your report for five years. However, they typically do not impact your credit score for the entire duration. As for removing credit inquiries from your credit report, you cannot remove accurate and legitimate information from your report. You must wait five years for a complex search to fall off naturally.
However, if there are incorrect, erroneous, or unauthorized details, such as a credit inquiry made without your permission, you have the right to have them removed. You can do this by submitting a request to the relevant credit reporting agency or seeking assistance from a credit repair service.
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