Most consumers are aware that any lender in South Africa doing a credit check on their personal profile could negatively affect their credit score. While this is true in some circumstances, it’s important for consumers to understand when it applies.

There are certain types of credit checks that affect a customer’s credit score, and some credit checks that will not affect scoring at all.

‘Soft’ vs ‘Hard’ Credit Enquiries

A soft inquiry is when you pre-qualify or get a pre-approval for a home loan, the lender or broker will conduct a soft credit inquiry. This doesn't affect your credit score and is only visible to the lender or broker.

A hard inquiry occurs when you formally apply for a credit product (like a home loan), and it's recorded by the credit bureau. This inquiry can slightly lower your credit score, especially if you apply for multiple loans at once.

Why do ‘hard’ credit enquiries affect your credit score?

Multiple credit inquiries, particularly hard inquiries triggered by loan or credit card applications, can negatively impact your credit score because they signal to lenders that you may be struggling financially or are seeking excessive credit. Lenders may perceive this as a sign of a high-risk borrower, potentially leading to a lower score.

Impact on Credit Score from a home loan application

Formally applying for a home loan, the resulting hard inquiry and opening of the new account, can temporarily reduce your credit score, potentially by a few points. However, once you secure the loan and make responsible payments, your credit score will rebound and even improve quickly over time.

The temporary dip in score should be viewed in the context of all the other activities you may be doing that will affect your score negatively, and with a greater negative impact.

How to Minimise the Impact

• Get Prequalified first - Get pre-approved or pre-qualified by a reputable mortgage broker before you apply to assess your eligibility and understand your potential home loan amount without affecting your credit score;
• Apply for multiple home loans simultaneously – Credit bureaus account for the use of mortgage brokers, so multiple home loan applications, with multiple lenders in a 7-day period, will only show up as a single enquiry;
• Avoid opening new accounts – Every time you open a new credit account, your credit score can dip a little, and then recovers as you meet the first few repayments on that loan. Most consumers are not aware how their credit score takes such a hit when they are opening accounts every month to pay them off (i.e. like a payday loan – beware!);
• Keep limits on unsecured accounts low – Your credit score is penalised based on how much of your available credit you have used, it’s better to keep unsecured accounts under 60% utilisation to ensure your score improves;
• Maintain a good payment record - Prioritise making all your payments on time and in full, as this has the single greatest impact on your credit score.

Use a reputable mortgage broker

Using a reputable broker will ensure you get more value out of this free service – including the full-scale service (as outline above), professional advice, utmost confidentiality and respect with your personal information, speedy approvals and priority with banks.

Phoenix Bonds is a premium mortgage broker in South Africa, with a proven track record (check out the reviews on Google).  For expert advice and personalised service, fill in your details HERE and one of our experienced Consultants will be in touch.