Credit scores wrecked as lenders ignore transparency guidelines

Price comparison sites, which would also likely benefit from a change in bank behaviour as individuals could more accurately compare loans and card rates online, argue the banks' inflexibility is prolonging the economic gloom. "At this time, when consumers need as much as they can get on their credit record in their favour, this refusal to use quotation searches is not working; it's a real problem," says Tim Moss, head of personal loans at Moneysupermarket.com. "This system has never been challenged: a credit footprint is an unfair price to pay today for a full search on the credit record when all [customers] want is a quote for comparison purposes."

Moss says banks exploit the system to encourage borrowers to stick with the first lender they try, and pay a higher price for their credit, when cheaper rates might be on offer elsewhere. "Banks use [the full credit application search] because it'll knock credit-scoring points off the consumer, who is then penalised if they try another lender for a full credit search," he says. "It means the first bank to be asked is more likely to get the business; it's a despicable practice and that's why we want the system changed."Multiple loan applications

The lack of quotation searches on offer is worsened by conflict between the lenders and credit reference agencies over their promotion to borrowers, as well as an almost non-existent general public profile. "People don't have awareness of them, but there's a responsibility by the lenders to make the facility available to them where it's appropriate," says James Jones of Experian credit reference agency. "If you ask for a quotation search, then it should be available; lenders have agreed to do this."

Yet banks refuse: at HSBC, for example, a spokesman says a "quotation search doesn't actually give us the full information we need to make an accurate and informed decision and therefore, by its very nature, it inhibits our ability to quote accurate information to our customers."

But this isn't the case. Neil Munroe at Equifax credit reference agency stresses such searches "give the same information" as credit application searches, and there's no reason why the banks can't offer them.

Lenders and credit reference agencies also disagree over the potential impact on credit ratings of individuals who make multiple credit applications for just shopping around.

On one side, agencies including Experian and Checkmyfile.com (a consumer name for Credit Reporting Agency) argue plenty of checks in a short period of time by consumers don't matter.

"Most people think credit searches damage their rating, and that's not true; if you have a strong credit history, no matter how many searches you do, it doesn't matter," says Barry Stamp, managing director of Checkmyfile.

However, all high street lenders contacted by Cash said multiple applications - made by an individual in his lunch hour, say, phoning round for the cheapest personal loan - would have an impact.

For now, this all leaves borrowers in a very difficult position, but progress may lie ahead: it's understood exploratory talks are being held between credit reference agencies and price comparison sites to look at ways of using quotation searches to make it easier for potential borrowers to apply online.

However, this could raise difficult issues over the third-party comparison site getting full access to individuals' credit files, which could prove another stumbling block for lenders.

• Have you ever had problems getting credit after making multiple applications for cards or loans? Have you applied for a cheap-sounding deal only to be offered a far higher interest rate? Let us know your views by email at cash@observer.co.uk or by writing to us at Cash, The Observer, Kings Place, 90 York Way, London, N1 9GU.