Your money | Earnings, Business & Markets

Applying to several lenders for a home loan makes you risky


´╗┐NEVER put all your eggs in one basket, right?

Well, when it comes to your mortgage that advice could cost you.

Shopping around and doing your research when it comes to taking out a home loan is smart, especially in a competitive market when banks are competing fiercely for your business, but when it comes to applying for a mortgage, do not apply to several lenders at once.

Submitting applications to multiple banks will affect your credit score and potentially get your application declined.

Shopping around is a negative behaviour for all credit applications cards, personal loans and home loans. It implies that the borrower is a higher risk because they are having to go to lots of different lenders to try and get credit, Luke Keller, CEO of getcreditscore.com.au told news.com.au.

Borrowers do it because we like to hedge our bets, explained Mr Keller, or so we have a back-up plan. But this may be the one time where putting all our eggs in one basket is a good idea.

They think if they apply to three [lenders], hopefully one will come through. The other reason is they will apply for one product which has a really, really good rate. But those lenders are targeting people with really good scores and really good backgrounds.

So consumers do it in case they dont get that loan with the really good rate; they have something to fall back on. What a lot of people dont know, especially with home loans, is if you go onto a comparison site and sort home loans by interest rate, the one at the top is often looking for a very specific person and there is a very good chance that you dont actually match that criteria.

Vache Vartanian, a mortgage broker and founder of MR LEND, said a rising number of consumers arent even doing it intentionally.

He has had many clients burned by multiple applications showing up on their credit file because of the rise in online lending.

I have had several clients who have gone to online lenders, such as clickloans.com.au or loans.com.au, and they intend to just make an inquiry but they dont realise that it is an application, Mr Vartanian told news.com.au.

Even if a borrower doesnt submit supporting documents, such as pay slips, the application will still show up on their credit file, and it wont specify whether it was just an application or whether it was declined.

You have to put yourself in the mind of the credit officer. Their job is to assess risk so they would see that and be asking why have they applied [for different home loans] and assuming they would have been declined, Mr Vartanian said.

Diane Tate, executive director of retail policy at the Australian Bankers Association said this is because banks have to abide by strict lending obligations so that they meet responsible lending criteria.

It is an application but by nature of you applying a lot of times, that could be a signal that you havent got credit, she told news.com.au.

It is one part of all the information [banks collect] about an application but it is important for customers, when they are going for a loan or a credit card, that they understand their credit file.

There are a number of companies which can provide you free access to your credit score, and Mr Keller said it was pleasing to see more and more Australians are actually using these services to check where they stand before applying for or negotiating a loan.

Consumers checking their scores through getcreditscore.com.au has more than doubled over the past five months from 350,000 in June to 750,000 in November.

But Mr Vartanian said there is still a big knowledge gap when it comes to credit files and what affects them, especially when consumers are being actively encouraged to shop around and not be complacent with a bank.

Maybe lenders, or ASIC, need to have something that warns borrowers who are inquiring or applying online for home loans that this will hit their credit file, he told news.com.au.

Luckily, blips on your credit score arent going to haunt you forever. If you have made the mistake of applying to several banks for a home loan, you can redeem yourself.

The shopping around element isnt going to affect your score that badly, Mr Keller explained.

It is one of the minor offences and the best way to fix it is just over time.

All that information stays on your file for five years but the shopping around aspect tends to wear off if you decrease your activity.

If you have applied to multiple different banks within a month, stay quiet for three or four months and [your credit score] will start to repair and come back up again.

When it comes to more major offences such as loan defaults it could take a little more time and effort to clean up your score, but it is still possible.

If that is you, Mr Keller said the way to fix it is to set up direct debits to ensure you pay bills on time, talk to your lender to structure any payments you arent keeping up with, and consolidate your debts in order to pay off any loans faster or to reduce fees associated with several individual loans.

John Symond gives his tips for finding the best first home loan

Australian market set to open slightly up


´╗┐

THE Australian market looks set to open slightly higher despite Wall Street falling, weighed down by financial and consumer discretionary stocks as some investors cashed in following a record-setting week.

At 0645 AEDT on Tuesday, the share price index was up six points at 5,478. Locally, in economic news on Tuesday, the Australian Bureau of Statistics releases Education and Work data.

In equities news, Ridley Corp, Wellard Group, Vocus Communications and Mayne Pharma have their annual general meetings.

Meanwhile, the Melbourne Economic Conference discusses the possible consequences of Donald Trumps US presidential election win, while ASIC chairman Greg Medcraft speaks at an AmCham lunch in Sydney.

In Australia, the market on Monday closed lower led by heavy falls from oil and gas producers and the major miners.

The benchmark S&P/ASX200 index fell 43.4 points, or 0.79 per cent, to 5,464.4 points.

The broader All Ordinaries index lost 37.9 points, or 0.68 per cent, to 5,532.6 points.