How do credit enquiries lead to credit declines?

Problematic credit enquiries

You decide you would like a new credit card but you’re not sure who has the best deal so you jump online and have a look around. You want to hedge your bets and make sure you get approval for a card, so you pick out 5 credit cards you like the sound of and apply for them all. After all, you don’t need to accept them all if they are approved and this way you are surely going to get at least one cross the line, right?

But hang on, what was meant to be an easy process of getting a credit card is proving to be a bit of problem. You can’t explain it, but over the course of the next few days, you receive knock backs from all the companies you applied to. This seems strange as you have a good job and have never missed a bill payment, so your credit should be fine. You decide the companies you applied to must be being picky, so you jump online again and make 4 more applications. What’s this, four more declines? This is crazy!

You decide to bypass all this madness and think you’ll treat yourself to a big flat-screen television. You pick out a beauty, 55 inches and full HD. What’s even better is the store offers credit; this is going to be easy. You confidently give your details to the store finance representative and the whole time you are thinking that you can’t wait to get this TV home! Then you’re hit with “finance declined.” Has the whole world gone mad? Why won’t anyone give me credit?

Hard enquiry

What a lot of people aren’t aware of is that each time they apply for finance, they are almost certainly going to have someone make an enquiry on their credit report. That enquiry will be recorded for 5 years. That’s right, 5 years!

While it’s true that a credit provider can’t make a credit enquiry without you giving approval, gaining approval can be as simple as ticking a box on a website or saying “that’s fine” to a credit representative. But hang on, why are credit enquiries that never ended in credit being provided with a problem? Surely it only matters what enquiries lead to loans, right? You would be forgiven for thinking so, but unfortunately, the answer is no.

When a credit enquiry is made, only limited information is held on the credit report.

Let’s say you make an application for a home loan, the only information recorded is the date and type of the application (in this case a home loan), the credit provider and the amount; that’s it. The enquiry won’t say if the application was approved or declined or even if you took up the facility if it was approved. Basically the credit provider who looks at the past enquiries is flying somewhat blind.

Credit card example

Let’s say you’re a credit card provider looking at 5 recent credit card enquiries on a credit report. You don’t know if the past enquiries were declined or approved, and if approved how many credit cards they ended up with.

In today’s credit risk-adverse world, the outcome of this misinformation is often a decline. Many credit providers will assume the past applications have been declined and assume you’re not telling them something, so they will decline the application just to be safe.

In many cases, you won’t even get the opportunity to plead your case as many lenders have fully automated credit scoring and these systems are triggered to react to recent enquiries and decline the application without looking into it further. For the most part, there are no clearly visible notices on application forms and websites that warn people that an enquiry will be noted on their credit report and the possible implications of making multiple applications.

Even if the consumer is aware an enquiry will be noted on their credit file, very few realize the potentially debilitating effects that a high volume of recent enquiries can have. Often only when the damage is done does this become apparent.

It makes little difference what type of credit is being applied for; home loans, business loans or credit cards, the problem remains the same.

Now we know what the problem is, how do you fix it?

The answer is you can’t, not in the short term anyway. Unless the enquiry was made without any authorization there is little that can be done to have an enquiry removed from a credit file. The only cure is time. The more historic the listing, the less relevant it is.

A credit enquiry example

A series of enquiries made 12 months ago would not be seen as being as important as a series of enquiries made over the past month. There’s no set rule for how old an enquiry needs to be before it’s not considered an issue. This is because each lender tends to carry different lending criteria and this criteria is under constant review. However there’s no doubt that the older the listing, the less relevant it is. This doesn’t help people who have made this mistake but desperately need finance, for them the pain is just getting started

Public awareness is key

Given how many people are affected by this problem, there needs to be more public awareness around this situation. Something as simple as a clear message next to the “submit” button on a website letting people know that a credit enquiry will be made, along with a warning that a high level of recent credit enquiries could result in credit issues, would be a great place to start. Armed with this knowledge I feel most people would apply for credit in a more informed and responsible manner.

If you are having credit issues, then call Clean Credit today for a free consultation. Through this quick conversation, we can answer your questions and explain What Credit Repair is and how it can help you. 

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