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Some of the warnings given to consumers that they will damage their credit score
by shopping around for credit are based on a mixture of poor knowledge of how
the credit industry works, myth and old wives tales, a leading credit expert has
warned.
Barry Stamp, Joint Managing Director of
annualcreditreport.co.uk explained:
"Most consumers are paying too much for credit right now - on average £400 more,
each year, in interest than if they switched to cheaper lenders.
"Across the 23 million credit active people in the UK, that's £9 billion over
the odds, more than necessary being paid each year by consumers, flowing to the
banks' coffers instead of being available for consumer consumption. "
"At this time of year we start to see consumers apply for credit cards to ensure
that they can get their plastic on the mat in time for their Christmas shopping.
"Warning consumers not to use financial comparison sites could seriously damage
their wallets and purses, limit the disposable income they have in the New Year,
extend the time taken to repay Christmas spending, and may put those on highly
balanced budgets under unnecessary debt stress," he added.
Research by Professor Merlin Stone of Bristol Business School recently
highlighted the inherent danger in using financial price comparison websites
which offer consumer a list of providers based on the cheapest headline interest
rates, without taking into consideration an individual's credit history and
other factors.
"The matching of willing lenders to a consumer's credit profile was first
pioneered in 2003 by the website givemecredit.com, which was itself the outcome
of academic research at the University of Plymouth Business School in
conjunction with Credit Reporting Agency.
"checkmyfile.com also offers a similar free service, either based on a credit
score, or a full credit file, depending on whether a credit file is purchased.
"Together with annualcreditreport.co.uk these three websites provide substantial
volumes of credit applications to lenders of all types and sizes, which have a
very high likelihood of success.
"Search footprints left at credit agencies come in many different colours. The
principal difference is that some record a full credit application, and some
record a simple credit enquiry.
"Only the full credit application searches are taken into account when assessing
credit.
"Lenders look to see that applicants have some previous history of credit, and
searches are one way of checking that an applicant is 'credit active'.
"The absence of searches, or very few, can have just as detrimental impact on a
credit score than having more than average.
"What's more, a credit scorecard is a sophisticated thing. It weighs up all of
the factors that go to calculate your credit score and there is a maximum
'weight' to the calculation in respect of the number of searches recorded on
your file."
"It is true that a consumer who makes too many applications in a very short
space of time can trigger the credit industry's fraud mechanisms, which can
cause much more severe problems than anything on a credit report, but the
inferred notion that normal levels of searches can damage credit ratings is
simply not true.
"And most people don't realise that declined applications are not reported on
credit reports at all.
"Most lenders use one agency, some use two. It's rare that you can pick up your
credit file from a single agency and see every application you have made for
credit, invariably some are missing.
"Some lenders choose not to use an agency if your credit score is very high, or
if you have an existing track record, so that explains further why some
applications may never appear on a credit file.
"We have many years' experience in providing credit reports and in the credit
scoring industry and we use this knowledge to provide our customers with free
access to the lenders who are most likely to say yes to them, at the cheapest
APR their credit score will stand, cutting out the credit lottery.
"Our recommendations include lenders who don't pay commissions to us and our
assessment of the merits and demerits of each card or loan are entirely
independent.
"We think that these factors should be of far more importance for consumers than
being worried about the impact of applications on credit ratings."
Source:
Getting Paid
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