There is a view among many South African consumers that applying for a bond at more than one bank will have negative consequences. The belief is that these enquiries will impact on your credit score and therefore hurt your chances of getting a loan or push up its cost if you are successful.
Many people only apply at their own bank for just this reason. They think that they are taking a risk if they shop around.
This raises some obvious concerns. After all, you are only exercising your rights as a consumer to compare prices, so why should you be penalised for it?
What is a given is that every time you apply for a loan of any sort, this will be recorded on your credit profile. This is called footprinting, and credit providers may use this information to assess you.
“Credit providers consider a multitude of factors when vetting applications for credit, one of which would be demand for certain types of credit,” explains David Coleman, the head of analytics at Experian South Africa. “A sudden surge in demand for unsecured or short term credit, linked with signs of stress building on indebtedness and repayment capacity of the consumer, would result in the credit provider taking a more cautious approach in extending further credit to such a consumer.”
However, short term credit is not the same as long term credit like a home loan in this regard. In fact, Nedbank says that it views multiple applications for a bond made at the same time as a single enquiry.
The head of credit for FNB retail, Hannalie Crous explains that they also make a distinction:
“From an FNB perspective we do not look at number of bureau enquiries pertaining to home loans as a key determinant of a credit score,” she says. “The handful of credit bureau enquires associated with a bond application will have no effect, however a consistent trend indicating that a consumer is taking on multiple loans could influence the outcome of a credit application.”
Not all bureaus will see you the same
In other words, the banks don’t see it as a negative if you shop around for a bond. A number of credit bureaus approached by Moneyweb also took the same line, although with a caveat:
“Each credit bureau and each credit provider that has their own in-house score will score consumers using their own criteria,” says Michelle Dickens, the MD of TPN. “It’s not a one size fits all. As a result there will be a higher weighting towards different aspects of data that will improve or decline the ultimate overall score.”
The head of the consumer bureau at XDS, Alex Moir, explains that different companies may therefore use information differently.
“Not all credit bureaus will use the application data in the credit scores, which means that a customer could go to as many banks as they like and their risk score with these bureaus would not be impacted,” he says. “Some credit bureaus do however use the application data and, in this instance, the consumer’s score could actually be impacted positively if they do enquiries at different banks. There is generally a threshold that some of the bureaus would have, where making one to three enquiries would add points to your score, three to five enquiries would leave the score as is and more than five could deduct points from your score.”
Moir adds that he believes this is a legacy from when these scorecards were developed and there was not much data available. Therefore any data that was supplied got used. However, this should now be the exception.
“Where you have a consumer with a lot of information such as a number of accounts with payment profiles, there’s enough other data to make an assessment,” says Dickens. “But when there is not a lot of other information, then the weighting could lean more towards the footprinting.”
She adds, however, that what bureaus can’t do is give you a bad score just because they have nothing to go on.
“One of the things the scores can’t do is negatively score you because there is no information,” Dickens explains. “You can’t be scored as a below average or poor consumer simply because there is not enough information to score you as good.”