Will multiple home loan applications affect my credit rating?

Applying for a home loan can be a nerve-wracking and time-consuming experience. But the last thing would-be borrowers want to do is hurt their chances of approval by making easy mistakes.

Making multiple home loan applications can have adverse effects on your credit history, credit score and your likelihood for approval from any one of the lenders.

Let’s explore how credit reporting bureaus grade events in your credit history and how to present yourself as an ideal borrower.

Why multiple applications may hurt your credit report

There are three major credit reporting bureaus in Australia: Equifax, Experian and illion. These bureaus keep a record of everyone above the age of 18’s credit history and activity and operate with a scoring system divided into five tiers.

Source: Experian.com.au, Equifax.com.au, creditcheck.illion.com.au.

Your credit history will include both positive and negative events, including:

• Money you borrow, including loans and credit cards
• Your repayment history
• Credit applications
• Defaults
• Bankruptcy
• Debt agreements

Submitting an application for a home loan falls under the category of ‘credit applications’. If your plan is to make multiple applications to even out the odds of rejection in hope that one will be approved, this may backfire.

Lenders will look at your credit history when you apply. If it shows multiple credit applications open at once, this could be seen as a level of poor financial behaviour to the lender. Put simply, lenders see an individual making multiple applications as risky. It does not showcase a level of stability or creditworthiness that indicates you can service a home loan.

Further, if your home loan application is rejected, this will be reported on your credit file, and it may hurt your credit score. If multiple applications are rejected, this may have a severe impact on your credit history and limit your chances of being approved for any credit products.

Instead, would-be borrowers should focus on applying for one home loan at a time and prioritise boosting their applications as much as possible to meet the lender’s eligibility criteria.

How to become an ideal borrower

Mortgage lenders must follow strict serviceability requirements when deciding who to lend money to. This helps lower the risk of a borrower taking on too much debt and falling into arrears or defaulting on a loan.

This is why home loan applications have eligibility requirements that borrowers must meet in order to be approved, including:

• Being above the age of 18
• Being an Australian citizen or permanent resident
• Having a good to excellent credit history
• Being employed full-time (Low-doc or alt-doc loans may be available for those self-employed)
• Meeting annual income minimums
• Having a sizeable deposit
• Having ‘genuine savings’

Knowing this, it may be possible to boost your chances of home loan approval by presenting yourself as an ideal borrower. This may be done by becoming the best possible outcome of each eligibility requirement.

Being an ideal borrower may look like:

• Increasing your credit score to sit in the excellent category.
• Being employed full-time for at least 12 months, increasing stability in your finances.
• Increasing your income to sit well above the income minimum for a loan.
• Having a spouse or family member co-sign or go guarantor on the loan to further support your application and increase the income going towards the loan.
• Saving a deposit of at least 20 per cent. Not only will this showcase a high level of financial responsibility, but helps you avoid paying lender’s mortgage insurance.