MPs warned shopping around for credit hits credit rating

Tuesday, 27 October 2009 10:35

MPs today were warned how shopping around for loans and credit cards may make it harder to secure a deal.

The Treasury select committee today took evidence on the effects of credit searches on consumer's credit records.

The select committee heard from Martin Lewis, head of moneysavingexpert.com, along with representatives from credit reference agencies, the bank and the OFT.

Mr Lewis said: "If I apply an 8.9 per cent loan and get an 8.9 per cent loan, that's OK. If I apply for an 8.9 per cent loan and get offered a 30 per cent loan, I don't see how that should affect my file.

"Binding principle should be, unless I know price, it should not hit and hurt me."

"It is a mammoth rip-off," he said. "People feel completely shafted. It is absolutely a hidden scandal, but one of the easiest ones to fix."

He explained of 100 people who apply for a loan, 70 are rejected, 20 get the loan and 10 are offered higher than the advertised rate.

"The public don't understand how this works. When you apply for a product, you should know price and whether you are accepted without afflicting your finances," Mr Lewis said.

While shopping around for the lowest rate will not hit your chances of getting a loan, once an application is made, it leaves a foot print on your credit record.

Lenders take a large number of applications as a sign that people have been turned down a number of times, and so they consider potential to be a greater risk.

The fact many lenders have stopped advertising loan rates - and only offer rates on a personalised basis - means shopping around for the best deal is impossible.

Mr Lewis added the current system is "profiteering.designed to stop shopping around."

Toby Van der Meer, at moneysupermarket.com, explained 17 per cent of people complete multiple applications for loans, and 46 per cent did not know multiple applications hindered their chances of getting credit.

Lower income groups are less likely to know about the dangers.

Mr Van der Meer pointed to quotation searches that are possible - and used by Nationwide - that do not leave a footprint on credit records.

He also pointed to a system in Germany where searches are left on credit records for ten days to cover fraudulent applications.

He added: "We believe the facilities are available for this in the UK."

Mr Lewis added: "Quotation searches were introduced in 2002, which mortgage companies use. That system is available but used in is less than two per cent of searches.

"The existing system works in lenders' favour. It is a very profitable system. There is no vested interest for change in the industry."

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