Credit enquiries can lead to credit declines

by BN03 Mar 2012

Your client decides they would like a new credit card, but they’re not sure who has the best deal, so they jump online and have a look around.  They want to hedge their bets and make sure they get an approval for a card, so they pick out five credit cards they like the sound of and apply for them all.  After all, they don’t need to accept them all if they’re approved and this way they will surely get at least one cross the line right?
But hang on, what was meant to be an easy process of getting a credit card has proved to be a bit of problem for them. They can’t explain it but over the course of the next few days they receive knock-backs from all the companies they applied for.  This seems strange to them, as they have a good job and have never missed a bill payment.  They decide the companies they applied for must be being picky, so they jump online again and make four more applications. What’s this, four more declines?  This is crazy!
No doubt, your clients may decide to bypass all this madness and treat themselves to a big flat screen television.  They pick out a beauty; 55 inches and full HD.  What’s even better is the store offers credit; so they think this is going to be easy.  They confidently give their details to the store finance representative and the whole time are thinking they can’t wait to get the TV home!  Then they’re hit with “finance declined.”  They must think the whole world has gone mad. Why don’t anyone give them credit?
What a lot of people aren’t aware of that is each time they apply for finance they are almost certainly going to have someone make an enquiry on their credit report and wait for it and that enquiry will be recorded for five years.  That’s right, five years!
While it’s true that a credit provider can’t make a credit enquiry without  a client 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 a problem?  Surely it only matters what enquiries lead to loans right? 
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 they took up the facility if it was approved.  Basically the credit provider who looks at the past enquiries is flying somewhat blind.
Going back to the credit card example; let’s say you’re a credit card provider looking at five recent credit card enquiries on a credit report.  They don’t know if the past enquiries were declined or approved and if approved how many credit cards you 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 they’re not telling them something so will decline the application just to be safe.
Even if the consumer is aware an enquiry will be noted on their credit file very few realize the potentially debilitating effects a high volume of recent enquiries can have.  Often only when the damage is done does this become apparent.  
Now we know what the problem is, how do you fix it?  Are you sitting down?  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. 
Given how many people are affected by this problem there needs to be more public awareness around this situation.