Australian Property News
Think twice when checking credit potential
Posted on Wednesday, June 27 2012 at 3:50 PM
Have you ever completed an application for a credit card, personal loan or mortgage pre-approval just to see how much you might be able to borrow in the future?
Michael Daniels from Smartline Personal Mortgage Advisers says that curiosity could earn you a strike against your name and derail your future hopes of getting a home loan.
Seeking a formal pre-approval, even if you don’t intend to take up the credit, is noted on your individual client record. Too many enquiries within a short period of time might cause a bank to become nervous, Daniels says.
“Lenders use a complex process called credit scoring when assessing your application for finance… numerous credit enquiries can considerably lower your score and damage your chances of securing a loan when you’re ready.”
A recent client was looking to buy a $495,000 two-bedroom unit and needed to borrow 90 per cent of the purchase price, he says. While the client’s borrowing capacity was almost double what was needed, the bank knocked back the application based on a poor credit scoring.
It turned out the client had applied for credit five times in 12 months with four different banks, just out of curiosity.
A statutory declaration had to be signed confirming the client hadn’t proceeded with any of the credit applications, and the unit loan was eventually approved.
“We’ve found three or more credit enquiries will score poorly with most lenders, leading to automatic declines.”
While it’s helpful to know how much you could potentially borrow, it’s better to avoid temptation until you’re ready to take up the loan, he says.
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