The Treasury Select Committee has launched an inquiry into how credit searches are carried out whenever someone applies for a product such as a loan or credit card.
Each time a consumer applies for credit, a search is carried out to determine their reliability as a borrower, but this leaves a 'footprint' on their credit report which can affect their access to credit in the future.
In order to find out how much a credit product will cost, because it depends on their current credit score, consumers have to make a full application each time, and such credit footprints can increase the cost of future borrowing, or limit their access to it altogether, which can be a deterrent to comparing products before accepting one.
In response to calls for action from consumer revenge website MoneySavingExpert.com, the Committee will investigate the impact of such searches on an individual's credit report, and to what extent lenders offer 'best practice' quotes for their services, and the ways in which it could be made more attractive for consumers to shop around to get the best deal without leaving a paper trail.
Talking to MoneySavingExpert founder Martin Lewis, Committee chair John McFall, said: "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."
Martin Lewis added: "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. We've been on about this for a long time, hopefully now the Treasury Select Committee will be able to deliver this."
Commenting on the announcement of a formal inquiry into credit searches, Tim Moss, head of loans and debt at moneysupermarket.com, said that this is a welcome move, but that it has been too long in coming.
"The way in which people are forced to apply for credit in this country is a fundamental barrier to transparency and inhibits borrowers getting the best deal possible," he said. "Consumers can shop around for gas, electricity, insurance and baked beans freely without it harming their credit score so why should searching for credit be any different."
There are alternatives to this potentially detrimental method, he suggested, such as in Germany, where consumers can compare a range of products before choosing one without it remaining on their credit report.
"I urge the Government to take strong action on this issue; the way in which we sell credit products in this country must be entirely rethought," Mr Moss said.
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