Could Multiple Credit searches that hurt your Credit Profile soon be a thing of the past?
Enjoy shopping around to find the best personal loan or credit card deal but worry that multiple credit searches may adversely affect your credit profile?
Well now an inquiry into whether borrowers who shop around for the best credit deals are being unfairly penalised is underway, with the Treasury Select Committee seeking to establish if consumers are being negatively affected by the current system.
The inquiry, which launched at the end of last month (22 September) focuses on the impact multiple credit searches have on consumers individual credit ratings, with the committee seeking to understand to what extent credit scores are actually being affected. See related article Don’t Let Identity Fraud ruin your chances of getting Credit for more information.
With a couple of exceptions, consumers can generally only find out whether they will be accepted for a loan or credit card by making a full application to the lender, so every time a credit check is run on you, this can show up on your credit report.
Confused.com has taken steps to address this problem by providing a tool that allows the consumer to see how likely they are to be accepted for a given credit card before they apply. After entering a few personal details, a search is carried out with the credit reference agency but its assessment of a would-be borrower’s credit file doesn’t leave a negative footprint that could put lenders off in the future. To access this service click here.
Barclaycard also offers a service which allows potential customers to establish their eligibility for a credit card without the need to complete a full application and without leaving a mark on the credit record.
But these are the exception rather than the rule and depending on how the lender views your credit file, too many applications could potentially have a negative effect on your file and subsequent interest rates are charged to you.
Why do multiple credit searches hurt my credit profile?
This is because it could look as though you have been turned down in the past for credit, whereas in actual fact, it may have been you who decided to turn down a credit card because you had been offered a better deal elsewhere.
One instance where this could happen is, for example, when a credit provider offers you a higher annual percentage rate (APR) than you expected or than was advertised.
Credit issuers are only legally obliged to offer the advertised ‘typical’ rate to 66 per cent of customers, which means the other third can receive APRs higher than what they originally believed they were applying for and as a result may turn down any subsequent offer, essentially meaning the application was doomed from the outset.
Commenting on the inquiry, Jo Garcia, head of credit cards at Confused.com, said: “It’s great the Treasury Select Committee is looking into the impact of multiple credit searches on an individual’s credit file, especially as customers applying for credit cards are not even certain of the APR of their product before they apply.
“With only 66 per cent of customers qualifying for the lead APR, even if they are accepted for the product the rate they are offered may not suit their requirements.”
The Treasury Committee has set a deadline of 14 October for evidence on the issue to be submitted from both lenders and consumers.
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