Is the end in sight for loan application credit checks?

Published:

23 September 2009

Topic:

News,Money,Credit Cards,Loans

Would-be borrowers have to make a full application for a loan to find out if they qualify and what rate they will be offered. Now a parliamentary investigation means that could all change...

A group of MPs have announced they are to investigate the way in which applications for loans and credit cards affect people's credit ratings.

The Treasury Select Committee has agreed to look into the matter to make sure would-be borrowers are being treated fairly.

Why?

At the moment, when someone wants to borrow money, they have to make a full application to find out if they would be accepted and the rate they would be offered.

Credit applications leave a footprint on people's credit ratings, meaning other lenders can see they've applied for borrowing. Under the present system, that can damage a person's credit score, meaning they have potentially reduced their chances of being accepted elsewhere.

That means some people may have to accept a higher rate than they need to because applying elsewhere could harm their credit score.

Overdue

The move has been welcomed by moneysupermarket.com's head of loans and debt, Tim Moss, who described it as "overdue".

He argued it prevents transparency and means borrowers cannot shop around for the best deal possible.

"Consumers can shop around for gas, electricity, insurance and baked beans freely without it harming their credit score, so why should searching for credit be any different?"

Overseas

Consumers in some other countries are not limited in the way UK borrowers are.

Tim explained: "In Germany, for example, borrowers are told which lenders will accept them, at what price and the size of the loan and they compare all the offers from all major lenders before they make our choice."

He added: "This means they can find the best deal for them, without any risk to their credit record. I urge the Government to take strong action on this issue; the way in which we sell credit products in this country must be entirely rethought."

Right now

Of course, while it's excellent news that MPs are to look into this issue, it won't help if you're looking for a loan just now.

However, there are ways to assess what kind of credit card or other borrowing you are likely to be able to access. Read our article 'Which credit cards do you qualify for?' for some more information.

If you then want to boost your credit rating, there's some good advice in our article 'How to improve your credit score'.

Related Links

• Read our article ‘Act now if you're looking for a loan’
• Read our article ‘Which credit cards do you qualify for?’
• Read our article ‘How to improve your credit score’
• Compare a range of UK credit cards
• Compare a range of secured and unsecured loans