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[MSE Martin]

Why aren't we told the rate before applying for credit?

Apply for a product and it puts a search on your credit file which hits your credit score, yet many products are rate for risk, so you can't know what you'll need to pay without applying (see the Credit Rating guide). This vicious circle, that hurts you when you shop around, should be stopped.

We've been campaigning on this for a while, and after meeting with the Treasury Select Committee of MPs - whose job is to hold the treasury to account - it's now running an inquiry into the effect on credit ratings of consumers shopping round for personal loans, credit cards, mortgages to get the best deals.

Help get the law changed

While it can't make the law, the Treasury Select Committee is a powerful force, it can and has compelled powerful people - the PM, Chancellor, Bank heads and more - to sit before it and give evidence. Its reports have widespread impact and often see real change as the Government must formally respond to any Select Committee reports.

For this investigation the committee wants to hear MoneySavers experiences, suggestions and comments by 14 October, e.g. have you applied for one product to be given another, were you rejected and then unable to get a card or loan elsewhere as a result?

Your stories (anonymously if you'd prefer) may then be used in a parliamentary evidence session at the end of October.

The Committee will then ask witnesses (probably credit search companies) to give evidence and once the names of witnesses have been confirmed you could be asked for ideas on questions to put to them.

A word from John McFall MP

Treasury Committee Chairman John McFall MP says:

"We on the Treasury Committee are delighted to be able to team up with MoneySavingExpert.com on this important issue, which Martin Lewis highlighted to us.

Members of the public should not be penalised for shopping around for credit, especially in difficult economic times such as these, when it is vital they can access the best deal for them.

I very much see our Committee's role as providing a link between Parliament and the public. We can highlight issues and problems faced by the everyday consumer to the Government and banks and hopefully effect change. We have already done so successfully on issues such as access to free cash machines.

We will be following up this issue with an evidence session in Parliament in October. In the meantime, we are looking to MoneySavingExpert.com users to let us know about their experiences and difficulties in searching for and obtaining credit before October 14th. We look forward to hearing your stories."

The Treasury Committee is sorry that it is not able to intervene on individual cases but you can find out more about the inquiry on the Committee's web site.

Why this is so important?

Make an application for a loan or credit card and the act of applying puts a search on your credit file, which in turn affects your credit score.

This is frankly ridiculous and means 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 because of that application.

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 rate' which legally only means 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. The recent change by Barclaycard to introduce a pre application check is a positive move.

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. This is something we've been arguing for a while - see 50 words and the recent stop applications hitting shopping around blog - so it's fantastic to see the Treasury Select Committee launching this inquiry.

How to respond

Preferably click reply to post your story below although if you don't want it to be public, email treasuryinquiry@moneysavingexpert.com.

MSE will then pick the best examples to send to the Treasury Committee.

Please try and stick to around 100 words to tell your tale - there's more chance of it being read & used.

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[cheeryoleary]

I've felt there does become a point where the credit scoring/screening method in place becomes anti competitive and puts me off 'shopping around'. Reminds me of the OFT news today about a Cartel of building companies sharing information in order to get the best price for themselves. I'm all for sharing information in order to screen bad risk customers. After all, credit card companies have to remain solvent. What I do object to is the sharing of information which I would consider anti-competitive.

[never-in-doubt]

I think Martin needs to re-evaluate his comments above "The recent change by Barclaycard to introduce a pre application check is a positive move" because the fact of the matter is that this checker system is useless.

For instance they search CallCredit for the checker but then go ahead and search Equifax at the time you 'actually' apply, after being misled by the 90% chance of success or whatever message.

I mean, its common sense to actually search using the actual CRA you will do the main search with, so to that end Barclays Pre Application Checker is actually useless and actually hurts your credit file more than it helps due to the fact CallCredit and Equifax are two totally different CRA's who operate differently and as such the data they provide will differ somewhat.

Just my point of view but valid all the same.

[suze369]

Hi This is my first post but this is such an important subject I thought I had to comment.

During a call to discuss my Current account I was solicited by my bank Smile to take out a loan to clear my Credit Card balance with them. I didn't really want to as this would tie me down to a fixed term when I really want to clear it as quickly as possible. The agent quoted me that I would pay an APR of 7.9%, which seemed a good rate so I agreed to letting someone call me to discuss it further.

A week later I recieved a call from the Smile Loan team and I recapped the conversation with his colleague including the APR given. It was only once we commenced the application process that I was given an APR of 16.9% instead! No clear reason was given and the agent said ' well you were overdrawn in April and May, so that will be why'.

I can't deny I was overdrawn but only on the last days prior to each pay day, and then only by <£5 and have had many years of being in the black with them.

Needless to say I stopped the application and will be looking to the MSE site for recommended current accounts soon!

I hope this example can help to stop this practice as effectively misleads customers and many in worse finanical situations may be forced to continue down this route. Good luck MSE!

[pmb2k]

I think this is definitely worth the case because i applied for a credit card couple of years ago now and managed to get a Paypal Mastercard which is funded by ex GEMoney now Santander. They give me an automatic £4000 limit which i was very surprised at but then again i was working for the company at the time ;-)

Anyway i recently got a letter back stating my credit limit had went down from an amazing £4000 to a very low £750 due to them evaluating my circumstances and looking back how my payments have been with them. As i think i have missed the odd one or two payments this is a result of this & now im probably wondering whether or not my credit report will be affected by this. The other card is from Halifax and again same amount been given but i probably don't need that much again not sure why they give me that much in the first place

[BenL]

Anyway.............

The credit reference companies have a "quotation" search function but the banks and credit firms are not suing it correctly. These companies need to be forced to use it for checking purposes and then when the agreement is taken out the full reporting of the facts.

This won't help them with people doing multiple searches but as they can review and slash the limits afterwards they can minimize their risk if it turns out after a month or 2 that the customer has applied for more credit.

There was a spokesman on the radio advising that only 1/3rd of the loan providers do rate for risk. Its a shame its all the lowest providers who you would want to go with though and not the 30% apr group.

[MSE Martin]

Important Note

Hi folks,

Just a quick note that this thread is for direct specific feedback for the Treasury Select Committee on the issue of credit applications and rate for risk products.

Chatty discussion about general issues or even general discussion on debt isnt relevant. This is an evidence gathering thread for parliament. Please can we keep it on topic, and realise this is an opportunity to get something done about a problem that blights many.

So Im sorry but any off topic discussions will be deleted (some already have).

Thank you for your co-operation

[Idiophreak]

I think this investigation's well overdue.

I applied to Sainsbury's earlier in the year for a loan advertised at (iirc) 6.9% "typical". Upon application I was told my rate would be 9.9%. I questioned this and they told me to consult my credit file. Which I did. As I suspected, my credit file showed absolutely nothing amiss, a number of accounts, not a single missed payment...I did the "give me my credit score thing" you can do on the website and it said my score was 999/999. I was living with my parents, so had little in the way of outgoings and I earn a decent wage.

Armed with my credit report, I then went back to Sainsbury's and made the point that clearly my circumstances and credit rating place me far above "typical" in terms of my ability and likelihood to repay the loan, so why was I being offered above the typical rate? I was then told that it could have been due to the amount of the loan I'd asked for or the term of the loan requested.

I tried to make my point several times that if it were these things that caused the rate to increase (or any other "internal criteria" for that matter) it was immoral, at best, for them to run a credit check - and thus footprint my file - for a loan on which I was never going to be offered the rate I'd applied for. Needless to say nothing ever came of my complaint.

It's about time there was a little transparency added to this process and lenders should be more accountable and explain their scoring decisions. This "it's not our fault, write to the underwriter" get-out they seem to operate is ridiculous.

ETA: Found my original thread: http://forums.moneysavingexpert.com/...html?t=1595985

Misquoted the figures slightly, I applied for 8.1% and was offered 12.1%.

[Joe_Bloggs]

Rate for risk is a double edged sword. It hinders the ability of a risky borrower to repay the capital and subsequent interest. Thus making it more likely that they will default. This thought process could well be a cycle in which lenders feel they have to charge more interest to make up losses ,due to defaults/debt management plans, that their high interest rates have created.

It might have been kinder to transfer the posts that were off topic to the MoneySavers Arms rather than deleting them. I recommend that all posters keep a local copy on their own computers of their posts in case of a network error or an editorial decision, expunging their misdirected thoughts into oblivion.
J_B.

[BenL]

In addition, I understand that in order for the words "typical" to be used in the adverts 66% off approved applicants must receive this rate.

Who checks this? and is it done monthly?

[GAB]

My experience was some time ago now as I prefer to save for something I want rather than get a loan, however your campaign highlights that practices haven't changed.

Shortly after buying my first house I decided to exit my company car scheme, opting instead for the cash. Being a savvy consumer I shopped around for the best loan rate to buy a car, but at every turn I was offered a far higher rate than that advertised. It was only after the third or fourth loan application that I learnt that each search left a footprint that potentially made further searches look worse!

I then got very worried, having already applied and had several searches. I applied to Experian and Equifax for my credit history and they both came back very healthy, further confusing me as to why the rates I was offered were so high. However, I was now stuck in a catch-22, I wanted a decent APR but was worried about leaving credit search footprints.

In the end, I went to my bank (NatWest), with whom I had a long and good relationship and they immediately offered me a loan. It wasn't the best rate available but was certainly better than all the others I'd been offered. So, I got my loan but was still very annoyed about the penalty of searching around for the best rate.

Something I never got to the bottom of is why I was always offered rates so much higher than those advertised. The only thing I can think of (given my clean credit history), was that having just bought my first house the banks must have felt I was at a higher risk of defaulting on a car loan. If this is correct, it clearly demonstrates why people should make decisions about loans rather than computers as, what they weren't factoring in was that my company was now giving me money, in lieu of a car, with which to pay the loan. Something a human could have factored in.

Good luck with your campaign, this penalty for shopping around is long overdue to be outlawed.

[j-dub]

I had an Egg card and an Egg loan... I decided it would be a really good idea to try and consolidate them both into a single loan as that way I'd be able to completely pay them off over 7 years and should be paying less interest than I was paying on the Egg credit card and loan combined.

I worked it out using the APR (around 9% if I remember correctly) on my existing loan and my payments were affordable, so I went through the hassle of filling in all the forms online to get this consolidation loan. The forms had sections to allow paying off existing loans and even cards... after spending a while filling in the online forms, and having a credit check, I got to the final page where it told me that they would do me the loan I wanted... only at 29.9% APR! This made the payments significantly MORE than the credit card payment and the loan repayment together and meant that the total interest I was to be paying was MORE than both the previous card and loan added together!

When I called them to find out why, I was told that "that's the way the system works... You've already got a loan and a credit card with us" and they simply didn't want to hear that I was struggling to pay after getting a pay cut from work, hence wanting to consolidate my debts with them...

In the end, this forced me to look into other avenues, from which I discovered that my Egg card agreement is un-enforceable and so I've got a case going against Egg to get the card written off entirely!

[kadiea]

You very rareley get the 'typical' APR rate or as I call it the 'temping' APR rate, it is obvious that the apr rate is there to make you apply. My dad got a tesco clubcard credit card, was offered the usual 12 month BT 6 month Purchases. My dad has a spotless credit history, fully owned house, assets and high income. But when he applied they offered him 19.9% even though the 'typical' APR is 16.9. It may only be 3% but credit shouldn't be expensive just because the banks !!!!!!ed up. Oh and you don't have to miss a payment or have a lifestyle change to get your Credit Limit dropped just be a customer. They will decrease your limit so that next time you get your statement you're overlimit, or you get declined in the shop. Then you get 'overlimit charges, fair enough when payments were not direct and the transaction system relied on little slips of paper but NOW what's the point?
Why let a credit card go overlimit, and usually only by about £20? oh sorry I forgot, so that everyday people have to hand their hard earned money over to the bank, it doesn't matter if the children have school trips, the bankers have to put their children in private school. Oh and if you start using your santander card all the time for everyday purchases and paying off the balance in full, expect a letter telling you your accout it being closed because you are not using your card enough!!! On top of the fact you were offered 15.9% and got 22.9%

[never-in-doubt]

Originally Posted by j-dub

In the end, this forced me to look into other avenues, from which I discovered that my Egg card agreement is un-enforceable and so I've got a case going against Egg to get the card written off entirely!

Can I just point out to any neutrals, the card/debt is not "written off completely" but merely unenforceable (huge difference). Have a read here if you want to see the actual process: Unenforceability & Template Letters

[Moggles]

Credit cards have always been issued subject to status, but the rate-for-risk policy currently practiced by some lenders, takes things to a new level. The advantage to the lender is obvious. Their market-leading deals are heavily advertised to draw in new customers. If this results in a flood of applications (even though, in reality, they're dishing out something less attractive to large numbers of applicants), they're laughing.

In more than a decade of card shuffling, I personally have not been treated to rate-for-risk (yet), but judging from posts to this board, there's a lot of it about now, with many victims left unaware that another deal has been substituted, until the card and paperwork arrives in the post.

As always, it's the most vulnerable that are hit hardest. If you're paying crippling interest rates on a debt, the last thing you need is several more weeks of wasted time and effort, because your chosen lender sent you a substitute card, which is just as expensive as the last. Many suspect that there was never any real intention to issue the advertised card, although there's no doubt some applicants get the flagship deal. (Is anybody checking the success rate and, if so, how often?)

Barclaycard and Capital One are among the worst offenders, but the worry is, that if they're allowed to get away with it, the practice will spread.

[foxwales]

I took out a loan with Alliance & Leicester in February 2008, they advertised an APR of 7.1%, which was one of the most competative deals on the market at the time; so, I called them up and proceeded through all of the questions to find that I had been accepted for the loan, however the interest rate which they were offering me was 8.9% APR.

Although the rate offered was somewhat competative, i did know the ramifications of my application having an affect on my credit rating, so I accepted the loan at that rate. A few months down the line I wanted to borrow an additional sum, so returned to Alliance and Leicester who approved my additional borrowing.

However, what they didnt tell me until after they had approved my additional borrowing was that they would lend me my original borrowed amount with the additional borrowing on top, then deduct my existing loan from the new loan and then apply an interest rate of 11.6% APR onto the whole amount borrowed!

I was quite put off actually looking for a better deal than this because I now had two credit checks carried out against my file in such a relatively short period.

[dnrc]

my quick story:

about a year ago i wanted a 4 grand loan to buy a car.

I looked around and eventually applied for a barclays loan at 8%

I have a good credit record and rating but when i got a letter a few days later i had been accepted, AT 30%!!

Needless to say i told them to do one and went elsewhere.

[bennosdelight]

Some banks and Building Societies do something called a 'soft score' on a loan which means that you find out what rate you are being offered without actually having the impact on your credit scoring.

I know that Nationwide do this and think that some of the other smaller people do aswell but i'm not sure about the big players like A&L, HBOS etc

[mhoward18]

hello,

i have not applied for a loan lately but i remember applying for one a few yrs ago. i found it very frustrating. I hate the advertising like such as.... x-amount from 5.9%apr. They cover themselves by saying "FROM" but this is not good enough. i have got a very good credit rating but i am self employed witch tends to go against me.
when i applied for a loan at 5.9% i ended up getting a rate of 7.9% it wasnt a bad rate but still whats the point in responding to someones add making you belive you are going to get a very cheap loan when thats not what you get. As for price comparison site its the same situation.

[littlemisskitty]

A year ago I had to apply for a loan to help out in a family crisis, the company had sent me a letter saying I was pre approved advertising a 7.9% apr. I applied and ended up having to take a loan over 5 years at 29%

Desperate times unfortunately called for desperate measures but needless to say Im now trying everything possible to finish this loan ASAP. Unfortunately I cant keep searching for a better provider as this afects my rating!!!!