Beware the loan 'footprints': they tell a tale on you

There's a way of shopping around for a good deal without staining your credit record. So why won't Britain's big banks adopt it?
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Ever heard of a "quotation search"? Quite possibly not, because this potential solution to the escalating problems facing those who apply for loans is being shunned by Britain's big lenders.

The quotation search was introduced by Experian and Equifax, the two major credit-reference agencies, in 2004. It is a bona fide credit check but one that doesn't leave a "footprint", or black mark, on your file.

Why should any of this matter to would-be borrowers? Because anyone applying for a personal loan now embarks on a perilous journey - one where they could end up with a higher interest rate than they'd bargained for or, at worst, a stain on their credit record.

Fearful of the cost of bad debts, lenders have been tightening the way they price their credit, so that borrowers can no longer easily compare deals using the low "typical" annual percentage rates (APRs) seen in advertisements as a yardstick. Indeed, credit hunters could well be penalised for shopping around for the best offer.

Two developments have brought this situation about. First, Barclays, HSBC and Halifax have switched to a system called "personal pricing" with loan applications. Instead of advertising a typical rate - one that's granted to two-thirds of customers - they now offer an individual deal based on a view of your credit history.

Meanwhile, rival lenders such as Lloyds TSB and NatWest continue to use low typical APRs to tempt customers but then, after a subsequent check on your credit file, might revise them upwards to reflect the perceived risk.

In both these cases, there are two problems for consumers: confusion over what rate you're actually going to get, and a de facto penalty for trying to pin down that rate so you can compare offers accurately.

Lenders will happily give you a quick quote as a rough guide, but seek anything more detailed and that will involve a formal check on your credit file. That in turn makes it hard to shop around between deals because too many checks of your file can damage your credit status - with other lenders interpreting the application "footprints" as signs of over-burdening yourself with debt, or as an indication of ID fraud.

The solution to all this is the quotation search - where a lender can scour your file, make a decision on your risk profile, and come back to you with an interest rate offer without any detriment to your credit status. It is recorded as a search, not an application, so no damaging footprints are left on your record.

But Britain's major banks have been turning their backs on the initiative, claiming that it's an expensive addition to the overall cost of loan sales, and demands staff training and new software capability.

Not one of the big five high-street banks - Barclays, HSBC, NatWest, Halifax or Lloyds TSB - will allow new customers (and, in some cases, existing ones) to request a quotation search for a personal loan.

In their defence, the banks argue that multiple credit applications made in a short time don't always affect a credit score. And Experian says that they only matter "in borderline cases".

Lenders also blame a lack of interest on the part of the public. "We haven't seen any consumer demand [for these searches]," says a Lloyds TSB spokeswoman.

The reason for this is contested but in reality it's quite simple: most people won't have heard of them.

Experian explains that it has "communicated [the quotation search] very widely to lenders and the media". It adds that an explanatory booklet it sends to members of the public emphasises the need to "make ... clear to lenders that you are only seeking a quotation".

But this advice is redundant since none of the banks will let consumers do so.

"This is a big difference to the insurance industry where you get your quote and compare before buying," says Stuart Glendinning of the price-comparison service

The website now offers loan hunters the opportunity to assess their risk profile before they seek a deal. It will then provide a list of providers that are unlikely to reject the applicants, so they don't run the risk of rejections and repeated footprints on their files.

Banking sources say the industry is already having to cope with high costs. There are huge marketing budgets, and many consumers decline offers of personal loans, so the extra cost of a quotation search - usually £2 but varying according to commercial deals - is unpalatable.

But the way the system works today is not in the best interests of the public, according to consumer group Which?. "It's a very messy business for consumers; we would like to see companies offer quotation searches [as part of the sales process]," says principal researcher Mike Naylor.

Change could be on the way, however.

Seymour Fortescue, chief executive of the Banking Code Standards Board, says the body will take a "sounding of members to see if this is a major issue. If so, a review could be appropriate."

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