Credit searches can damage your credit report - True or False?

Posted in 'Credit Score' by Barry Stamp

15 July 2009

Applying for more than one credit card or loan in a short space of time will damage your credit rating, and you’ll be automatically rejected next time, right? Wrong.

There’s a common misconception that the number of searches appearing on your credit file is a major factor in determining whether or not you’ll be accepted. Only this month we’ve read in the national press two independent reports claiming that several searches can seriously damage your credit rating. We also see this mistaken belief repeated regularly online on many ‘expert’ websites.

It’s simply not true.

Don’t be dissuaded from shopping around for the cheapest credit deal simply for fear of laying down searches on your credit file.

Some years ago we worked with Channel 4 to help with a series of programmes to find out how much credit we could raise if we tried, using credit scoring to apply only to lenders who we identified as having an appetite to lend. To maximise our chances, we asked the production team to find us a willing female volunteer aged around 35-44 in a salaried job and with a good stable background of having lived in their current property for some time and having a good credit record. They found for us a much younger self-employed male actor, not currently in work, who had recently moved house and whose credit file was reasonable, but not as sparkling as we would have liked.

In just 3 short weeks we obtained credit well in excess of £500,000 for that volunteer, in addition to his fairly substantial existing mortgage. To do this, we had expert knowledge of when to apply, who to apply to, how much to apply for, and the exact frequency of the applications, so we didn’t light up any fraud warnings. (One thing that is true is that very many applications in the space of an hour or so will certainly ring all the fraud bells, so don’t try this at home. We know the credit industry well enough to avoid falling into all of the fraud prevention traps).

Hundreds of applications were made. Hundreds of credit searches were made. Yet we still got the credit. No application was ‘referred’ or ‘declined’ and we didn’t damage the volunteer’s credit standing either.

Still not convinced?

Over the past ten years, when we have tested a new service at checkmyfile, we use ‘test subjects’ to make sure that everything works exactly as it should. But invariably our IT team, and myself, use our own personal details to road test the service in real life. On occasions, my credit file has had, and still has, many times more searches than an average person has, yet my credit standing has always been fine and I have not been declined credit.

The reasons for this is firstly that credit searches make up only a small part of your credit score, perhaps around 7%, and secondly there is a ceiling on how much the credit search part of a scorecard influences the final result. Having no search activity in the last 12 months is often just as bad as having more than average levels of search activity. Even at its worst, there is no difference on most scorecards of having 30 searches or 3000 searches. And if the rest of your credit file is good, there’s a fair chance that the good bits will outweigh the bad bits.

So why are people unexpectedly declined credit? In our experience, most are caused by adverse information on their credit files that the applicant knew nothing about. This can be a late payment, or even a judgment, a financial association with a more risky person, a fraud warning, or, in a small number of cases, an error. Almost always, the reason is much more obvious than the frequency of credit searches.

Check your file and keep an eye on it to guard against unexpected declines using our Unlimited Access service, from only £7.99 per month after a FREE 30 day trial. Great value, and peace of mind too.