Many people might assume that if they keep applying for credit they will eventually find a lender who will accept them. However, when searching for finance this is one of the biggest mistakes you can make.
What happens when you make an application?
Every time you make a credit application it leaves a mark on your credit file. This is the same when you apply for any type of finance including a loan, credit card, mortgage or car finance. For each application, the lender will search your credit record. They will do this to see how you’ve handled credit in the past and whether you look like a trustworthy applicant. They use will this information to make a decision on whether they should lend to you.
Will multiple applications affect my credit score?
You might be unaware, but the number of applications you make can actually impact your credit rating. When you make a credit application, the lender will typically carry out a “hard” search. This will leave a footprint on your credit file that other lenders can see. These can have a direct impact on your scoring as they indicate your level of need for credit.
On the other hand, a “soft” search is typically carried out by lenders if you request a quote or they need to check your eligibility before you apply. As these happen before an actual credit application is submitted, they are only visible when you view your own credit report and as a result, don’t have an impact on your credit score.
At Red Potato we make sure we speak with you first before running any credit checks. When you apply for car finance we will get your permission to run a soft search, usually with you on the other end of the phone. This means that getting a quote from us won’t affect your credit score.
What exactly can lenders see?
Lenders won’t be able to see whether you’ve been refused for any of your applications, but they will be able to see how many you’ve made and who with. This information stays on your file for 6 years. However, lenders will be most interested in your credit activity over the last 1-2 years.
If lenders see that you have made multiple applications within the same timeframe, they often view this negatively. This is because it can look as though you’re desperate for funds. Lenders might be more inclined to reject your application in this instance as they might be worried that you’re less likely to pay back on time if you’re desperate.
This can harm your application even further if you have a poor credit history.
What counts as too many applications?
Each lender will have their own individual criteria to satisfy. This means that there’s no definitive answer as to how many credit applications looks like too many. Rather than taking this approach, you should carry out research and only apply for finance that is right for you. You will then have a much better chance of being approved. If you know you’re going to make more than one application then spread these out over a few months if you can.
What if you have a poor credit history?
If you have a poor credit history then you might need to make multiple applications before being accepted. The risk to this is that it can give the impression that you’re desperate for credit, even if you’re not.
Knowing your credit score is important as it will give you an indication of what you’re eligible for. You can then seek out lenders who are likely to offer you finance if you are suffering from bad credit.
Another thing to consider is to work to improve your credit rating. This will help give you more finance options in the future. Here are some the ways you can improve your credit rating over time.