WE’RE often told that "shopping around" will save us money. But enthusiastically applying this logic to credit cards could cost you dearly in the long run.
Every time you apply for a credit card, the lender will access your credit file to determine your risk level. This is recorded on your file as a "credit Inquiry".
If you apply for a bunch of cards in a short period of time - whether to research, compare credit limits or load up on frequent flyer points - multiple inquiries will appear in your history, diminishing your credit score and, therefore, ability to obtain a loan in the future.
Therefore, it's important to only use information that is publicly available.
Paul Abbey, former head of unsecured lending at NAB, said these black marks suggested to lenders that the consumer is struggling financially and hungry for credit, being rejected by other lenders, or even trying to defraud credit providers.
There is no way for the lender to know what's happened after each inquiry - even if the customer doesn't proceed.
"Even if you apply for the sake of research, those inquiries will make you look like everybody's knocked you back and you're desperate," said Mr Abbey, now at peer-to-peer lending start-up MoneyPlace.
"You have to use and compare the information in the public domain, because you've gone too far if you've filled in your details and hit the submit button."
The warning is even more salient today with the growing ease of acquiring credit cards. Lenders are increasingly making the application process quick and easy and promising to respond with a decision within 60 seconds.
Following legislative changes, credit providers can now give "positive" data to credit reporting bureaus such as Equifax and Experian, including repayment histories.
But Mr Abbey said it was highly unlikely that inquiries will ever be attached with further information to show the customer's intentions and outcomes. Multiple inquiries will continue to indicate financial stress.
"There is no obligation on the bank or provider to say this application was rejected for these reasons or that nothing happened," he said. "It just won't be happening."
Credit scores can sit between zero to 1200, and reflect a person's credit worthiness, based on factors such as the amounts borrowed, defaults and court orders. The lower it is, the harder it will be to obtain a loan.
Belinda Diprose from Equifax, formerly called Veda, urged consumers to examine their credit file and check if there are any anomalies.
Australian are legally entitled to access their credit report for free once a year.
She said legitimate inquiries can't be erased, but will automatically expire after five years.
"If you see an inquiry but you didn't apply for anything, it may be a sign the someone has stolen your identity, and that's a case definitely worth investigating," she said.
Mr Abbey said in some cases a credit provider could have had processing issues, leaving multiple inquiries on a file.
Ms Diprose also warned that another pitfall was in-store finance, for example, to buy a fridge at Harvey Norman. This will also trigger an inquiry that will be recorded on a customer's credit file.
"If you're buying a fridge interest-free, there will be an application as part of that and there will terms and conditions that generally includes a piece that says your information can be checked with a credit reporting body, and so as soon as you've signed that, that will lead to an inquiry."
