Why can’t you shop around for a loan?

Moneysupermarket.com today called upon the Treasury Select Committee to improve transparency and fairness within the credit search industry in order to allow consumers to shop around for unsecured lending products without it impacting their credit score.

Every time you make a loan or credit card application, the lender checks your credit file. But many people don’t realise that - if your application is turned down or you decide not to proceed with it - a mark is left on your file which could reduce the chances of future applications being accepted.

Shopping around for credit cards and loans is becoming more common. With lenders becoming more choosy about who they’ll offer loans and credit cards to, an increasing number of applications are being turned down. What’s more, most providers now use a strategy called risk-based pricing, which means that even if your application is accepted, you may be offered a rate of interest higher than that you saw advertised.

Yet, multiple applications can have a negative impact on your credit score – something 46% of people are unaware of according to research from moneysupermarket.com

Why does an application affect your credit score?

The reason why banks and building societies check credit files is because they need to evaluate the risk of you as a customer. The decision on whether or not to lend to you will depend on your credit history. This is understandable and, particularly with the number of people defaulting on credit repayments on the up, it is essential that banks and building societies lend responsibly. However, providers can access this information through a ‘soft’ or ‘quotation search’ without leaving a ‘hard mark’ on your credit file.

Toby Van Der Meer, moneysupermarket.com’s managing directer of money, said: “Our research shows that many consumers don’t understand the impact shopping around has on their credit rating. And those that do may be missing out on the best deals because they’re reluctant to make numerous applications in case it has a negative effect on their credit score. So it’s effectively a no-win situation at the moment.

“We have asked the Treasury Select Committee to press for change in this market. We need to see greater transparency and fairness in the consumer credit market, with providers using quotation searches rather than full credit searches on applications, so consumers can shop around freely for products without any impact on their credit files.”


This is a practice already widely used with mortgage applications – the lender will assess your credit file and make an ‘offer in principle’ which is based on a soft search. If you then decide not to proceed with the application, a footprint will not appear on your credit file. A mark only appears on your credit file if you complete on the mortgage.

The same process can be used for loans and credit cards. It is widely used in Germany but here in the UK, Nationwide building society is the only provider to carry out soft searches on loan applications.

What should you do if you’re looking for a credit card or loan?

With ‘hard’ searches being prevalent at the moment it is vital that you apply for credit carefully:

  • Get a copy of your credit file and make sure that the information held about you is correct. This costs just a couple of pounds from the credit reference agencies Equifax and Experian. 
  • Don’t apply for products you won’t be accepted for. The leading credit card and loan deals are only available to those with excellent credit ratings. This doesn’t mean you won’t be able to borrow, but you must be prepared to pay a higher rate of interest if you have a blemished credit history or have never had a credit card or loan before.
  • Take steps to improve your credit score. There are simple things you can do to boost your credit score. For more on this, read Peter Harrison’s article ‘How to improve your credit score’.

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