Rather, it means you should weigh up your options carefully before doing too many applications. Let’s say you want to consolidate your loans into a single loan, the obvious solution is to find out who will offer you the best interest rate. To make comparisons, you would need to apply at a few different banks and lenders.

How credit checks work

Every time someone does a credit check on you, it leaves a mark on your report, this is known as an enquiry. Enquiries generally remain on your credit report for 12 months. Prospective lenders will look at the number of enquiries on your report, as well as whether your applications were successful or not. There are regular reasons someone would do an enquiry on your report, for example:

• You open a new utility account.
• You apply for a loan, like a home loan or a personal loan, or a credit card.

Having lots of enquiries on your report in a short space of time can make it look as if you’re struggling with your current debt, or that you might be desperate for money.

Lower interest rates matter

Too many enquiries in a short space of time can also affect the interest rate at which lenders offer you credit, so be cautious of making too many applications.

Consolidating your existing loans into a single, manageable loan will mean you make 1 payment every month to 1 provider. Another bonus of consolidating your loans is that you might be offered a better interest rate, which will save you money in the long run.

Remember that you won’t know the interest rate or the amount that you might be offered until the lender has done an enquiry on your credit report. So, try and limit your applications as you will most likely only take up 1 offer. 

More important credit score pitfalls

While it’s necessary to have enquiries done when you want to borrow money or open a new utility account, there are some other important habits that can affect your credit report.

Make sure you have set up debit orders for regular payments, and you have enough funds available in your account every month. Missing payments will show on your credit report and it will look like you’re unable to manage payments on your debt, which makes you seem unreliable.

Also, try to use only 50% of the credit available to you. If you have R50,000 available, for example, try to use only R25,000.

Having a healthy credit record is important for when you need to borrow money, whether it’s for an emergency, for extra money or to buy a car or home, so make sure you look after it.

Did you know that if you take out a personal loan and open a Nedbank Savvy Plus or Savvy Bundle Account, you can get R200 a month cash back for the duration of your loan? For an affordable loan tailored to your circumstances and value-added extras like cash back, choose the bank that’s best for your money.