Treasury committee to probe credit application trap

Today's announcement is the result of talks with MoneySavingExpert.com earlier this month where site creator Martin Lewis highlighted that consumers are being unfairly penalised.

When applying for many products, you don't know the credit score required in advance, meaning those unlikely to be accepted for a particular product often still apply. They are either rejected or given an inferior deal (see the Credit Rating guide).

The problem is that when you apply for a loan, credit card or mortgage, it is registered as a 'search' on your credit file.

And every search harms your overall rating so a needless application makes matters worse (see the Top Balance Transfer, 0% Purchase Cards and Cashback Credit Cards guides).

Change required

Committee Chair John McFall MP says: "We are delighted to team up with MoneySavingExpert.com on this important issue, which Martin Lewis highlighted to us.

"The public should not be penalised for shopping around for credit, especially in difficult economic times, when it is vital they can access the best deal.

"We can highlight issues and problems faced by the everyday consumer to the Government and banks and hopefully effect change."

Rejection spiral

Martin Lewis says: "The situation is ridiculous. Some people apply for 8% loans, get told they'd be charged 16% and then see their ability to get a cheaper loan from elsewhere diminished.

"Alternatively, you can apply for a credit card for its cashback rewards, only to be told that you're getting a different card without cashback, that you don't want. Yet again, the process of doing so potentially hurts your ability to apply elsewhere.

"Sadly, most cards and loans advertise 'typical rates' which legally only mean 66% of accepted applicants get that rate. For those rejected, the need to apply to another provider can lead to rejection spiral as too many searches, especially in a short time, can hurt your credit score.

"My view is, quite simply, that you should be able to know exactly what rate you will get before it's recorded on credit files and hopefully the Treasury Select Committee can deliver this."

Earlier this month, Barclaycard said it will allow potential customers to check their chances of acceptance before formally applying for a credit card (see the Barclaycard pre-application check MSE News story).

Improve your credit record

There are a number of steps you can take, including:

• Get on the electoral roll. If you're not on it, you're unlikely to get credit. Simple.

• Space out applications. Not just for credit but for car insurance, mobile phones and others. All can leave a 'hard footprint' on your file.

• Build a good credit history/repair past problems. Always repay debts and pay all bills on time. If you've a poor credit history or can't get credit because you have no credit history then apply for expensive credit cards. Spend a little each month, but always pay them off each month to avoid interest. After six months to a year you should start to build a decent record.

• Marriage doesn't hurt, joint finances do. If you're 'financially linked' to someone on any product, their credit history affects yours. Avoid having a joint bank account or mortgage with someone with a patchy credit history.

• Avoid the rejection spiral. If you're rejected once, always check if there's an error on your file before applying again.

• Cancel unused credit cards. Access to too much credit, even if unused, can hurt. If you have an unused credit card, cancel it by contacting that firm. Simply cutting up the card is not enough.

• Check addresses on active accounts. It's important to ensure any account listed as active (even if you don't use it) with the three credit agencies is registered to the correct address.

• Amend errors. If you disagree with something on your file, and you can't get the company to remove it, write to the relevant agency to add what's called a 'notice of correction'. This will usually slow applications as they're then manually processed, but it can help. You can also complain to the free Financial Ombudsman Service.

You can feedback your experiences on this subject at www.moneysavingexpert.com/treasuryselect

Further reading/Key links

Boost credit score: Credit Rating Top cards: Balance Transfers, 0% Purchase, Cashback Cards Pre-application check: Barclaycard