It should be easier for customers to shop around for personal loans and credit cards without harming their credit rating, according to an important new report.

MPs on the Treasury Select Committee have called for the Office of Fair Trading (OFT) to take steps to make it easier for would-be borrowers to get hold of their credit ratings and to compare loans.

It suggested there could be “serious flaws” in the market because people are prevented from shopping around for the best deal.

Toby Van Der Meer, moneysupermarket.com’s managing director, is one of the experts who gave evidence to the committee.

He said: “We need the OFT to act quickly on this – the situation we are in now is not sustainable for consumers.”

Comparing loans

The problem with loan and credit card deals is that the rate you see advertised may not be the one you are offered, but you won’t find this out until your application has been processed.

Lenders display a ‘typical’ rate when advertising loans and credit cards yet this only have to be offered to 66% of successful applicants. This means a third of people could be offered a higher rate of interest but they won’t know what rate they’ll qualify for until their application has been processed.

By that stage, the lender will have done a credit check on you and a mark will have been left on your credit file. Multiple credit searches can have a negative impact on your credit score.

  

This process makes it difficult to shop around for loans and credit cards because the only way you can find out what rate you’ll be offered is to make a full application. But if you apply for a number of different deals you risk damaging your credit score, which in turn will reduce the likelihood of your being offered a competitive rate.

Toby explained: “We know that only 30% of people who make an application for credit are accepted. Even worse, only 20% of those that apply for credit get the rate they applied for.

Or to put it another way, 80% of consumers who see a product won’t get it and they’ll be penalised for trying because they’ll be even less likely to be accepted if they apply for another product.”

Apply carefully

Of course, any action by the OFT is likely to take some time, so if you’re in the market for a loan or credit card now then this won’t help you.

The best way to protect yourself is to only apply for credit you have a reasonable chance of qualifying for. The market-leading deals will only be available to those with excellent credit scores so there is little point in applying if your history is less than perfect.

It’s well worth getting hold of your credit report before making a loan or card application. Not only can you find out your credit score, but you can also check that the information held about you is correct – mistakes do happen. If any of the details are wrong you can have them amended by making a notice of correction.

There are also things you can do to improve your credit score, perhaps by using a credit-builder credit card or closing down unused cards. Read our article ‘How to improve your credit score’ for tips.

For more information on this issue, listen to our podcast ‘Who decides your credit score?’ and read Clare Francis’ article ‘Why you can’t shop around for a loan’.

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