Maintaining a good credit score is an important part of managing your finances. It affects your ability to access credit, secure better interest rates and be approved for financial products – such as personal loans.
In simple terms, your credit score helps lenders decide how much risk is involved with lending to you.
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When you submit a loan application, you’re giving permission to the lender to conduct a “hard” credit check. This could cause your credit score to decrease and will be recorded in your credit report – meaning it can be seen by other lenders.
Before you apply for a loan with Jacaranda Finance, you can check if you qualify. Doing this allows you to assess your eligibility without impacting your credit score. We determine your outcome by doing a “soft” check on your credit history. Unlike a hard check, a soft check will not impact your credit score and can’t be seen by other lenders.
A hard credit check is recorded in your credit file and is visible to other lenders, while a soft credit check does not impact your credit score and can’t be seen by other lenders. Typically soft credit checks are designed to give you an indication of your options without committing to a full application, while a hard credit check is a part of the loan application process. Unless you are applying to multiple lenders at once a hard credit check resulting from a loan application should only have a minimal impact on your credit score, though this may depend on the type of credit being applied for and your current credit score.
Read more: Our guide to credit scores
It’s important to know that applying for multiple loans in a short period of time could have a greater impact on your credit score. This is because several enquiries could indicate higher risk to lenders.
Bonus tip: It's best to compare options and check eligibility before submitting any loan applications.
When you apply for a loan, it gets recorded on your credit report. This means that other lenders can see where you’ve previously applied. In Australia, credit enquiries typically remain on your credit report for up to five years. Fortunately, their impact on your score reduces over time – particularly if you are approved and make regular payments toward your loan. Recent enquiries are also more likely to matter than older ones.
No, simply getting approved for a loan won’t improve your credit score – but how you manage the loan could. Making repayments on time and meeting your loan obligations could help you to:
By demonstrating positive habits over time, you’re showing lenders that you are less risky to lend to. This could improve your chances of being approved for future credit products.
On the other hand, missed or late payments could negatively affect your credit score.
Read more: How to improve your credit score?
It’s normal for your credit score to decrease slightly after applying for a loan. Often this is temporary, and your score will recover if you’ve been approved and start making on-time repayments.
Still, there are a few practical ways to protect your credit score when applying for a loan:
Being informed and prepared before applying for a loan can help protect your credit score from decreasing unnecessarily.
Bonus tip: You can check if you qualify with Jacaranda Finance without impacting your credit score.
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