Picture: THINKSTOCK
Picture: THINKSTOCK

If you're in the market for a home loan and are applying to multiple banks to determine which one will give you the best interest rate, don't worry about the impact of numerous home-loan applications on your credit score —  no matter what your bank tells you.

A couple from Cape Town, who asked not to be named, told Money how staff at Standard Bank recently tried to discourage them from applying to other banks for a home loan, alleging that doing so would negatively affect their credit scores.

"We were warned that if we made 'too many inquiries' or applied for bond approval at 'too many banks', our credit rating would be lowered," said the woman.

"Our credit ratings are currently high, as we pay our bills."

The consumers then called Standard Bank's call centre and were told the same thing: "too many" home-loan applications would adversely affect their credit scores.

The consumers doubted they were being told the truth. They feared they were being deterred from searching for the most competitive interest rate, under threat that shopping around would lower their credit scores.

Andrew van der Hoven, head of home loans at Standard Bank, described their experience as "unfortunate".

"It is not policy to inform customers that they will be adversely impacted if they apply at more than one mortgage provider," he said.

We were warned if we made ‘too many inquiries’ our rating would be lowered.
Standard Bank customer

"The [bank's] credit-scoring model for home loans utilises a multitude of factors to assess a customer's risk; however, none of them are based on the 'number of applications in progress' or similar variable.

"From a home-loans perspective, this [multiple applications for a home loan] would not influence a customer's risk determination.

"When acquiring an asset like a home, it is important to shop around and secure the most appropriate offer available," Van der Hoven added.

When Money sent Standard Bank's response to the consumers concerned, they said they hoped the bank would ensure that all employees were properly informed so that no other home-loan applicant was misinformed and discouraged from seeking the best interest rate.

Financial products and services are confusing as it is, and bank personnel should be equipped with the facts, and should not spread falsehoods, they said.

Whenever you apply for credit, your application is noted as an inquiry on your credit report. Credit bureaus and most credit providers have their own credit-scoring models. And some credit providers use the bureaus' scores as a guide when extending credit.

These credit-scoring models typically make a distinction between inquiries relating to secured lending and those relating to unsecured lending.

The latter tend to be weighted because applications for a credit facility or for
short-term credit, such as micro loans, can predict risk by indicating that you are credit-hungry or debt-stressed.

However, when you apply for a home loan, you are seeking to invest in an appreciating asset.

Annelene Dippenaar, head of legal at credit bureau Compuscan, says when it comes to secured lending, most banks have their own scoring models and it is at a bank's discretion what weight to place on a previous inquiry, if any.

Compuscan takes previous inquiries into consideration when you apply for unsecured credit, but only after a specific number of applications in a specific period.

When you apply for secured credit, the bureau also considers the number of inquiries, "but it carries a small weight and it can have very little or no impact if a consumer makes various applications".