Will multiple bond applications hurt your credit score?

We explore whether shopping around for the best home loan offer could have an adverse effect on your credit score

Taking on a home loan is an enormous financial commitment and so naturally, you’d want to try your luck with a few financial institutions in your search for the best deal.

The good news according to TransUnion CEO Lee Naik, is that when it comes to home loan applications, there’s nothing wrong with shopping around because credit bureaus consider this type of application as positive credit demand.

“When we get enquiries from a bank, credit provider, an originator and or even a vehicle asset financer, we look at them as positive credit demand because they tell us that the consumer is looking to take on a longer term debt obligation and in many regards it’s a positive indicator instead of a negative indicator. Having many enquiries coming through the bureau for things like home loans aren’t necessarily seen as a poor indicator of credit health,” he explains.

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“When you go to a bond originator, they may make five or six requests to different providers and from a bureau perspective, we’ve built in smart logic in how we deal with it and typically we treat multiple bond applications from a bond originator as single enquiry when we figure out the affordability score for the client. We actually advocate that you should be shopping around for the best deal so we bear that in mind.”

Where multiple requests for a loan can become a risk to your credit score is when the applications are for micro lending purposes and for unsecured loans like payday loans and other short-term loans. These types of loans are typically considered as negative credit demand.

That’s because these types of loans indicate some form of financial distress in person’s life and this raises questions about that particular consumer’s credit affordability levels.

“From a bureau perspective, we typically think about loan applications in two ways: positive credit demand and negative credit demand, which we use to identify signals of distress borrowing,” says Naik.

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“So when we look at things like micro loans or unsecured loans they point towards the fact that a customer, at that time, is going through some sort of lifestyle duress and it may be an indicator of the overall credit health of the consumer.”

So if you want to keep your credit score at a healthy range, best you stay away from those all too tempting high interest bearing short-term loan deals.