People applying for credit cards with two major UK lenders have to roll the dice to check if they will be accepted, putting their credit score at risk in the process.
HSBC and Tesco Bank require applicants to do a ‘hard search’ which shows up on their credit file, and can damage their credit score if they are rejected or make lots of applications in a short space of time.
The vast majority of Britain’s biggest lenders, including Lloyds and Barclaycard, allow customers to do a ‘soft search’ – this determines the likelihood of being accepted for a credit card without harming credit ratings.
Roll the dice: Most credit card companies allow applicants to determine their chances of acceptance without risking their credit score, but HSBC and Tesco Bank’s sites do not
Seven credit cards offered by HSBC and the same number from Tesco Bank do not allow customers to check their eligibility before applying through their websites.
Katie Brain, from financial information business Defaqto, said: ‘It isn’t always clear when consumers apply for these types of product that it could affect their credit rating.
‘For example if their application is declined it will reduce their credit rating and could make it more difficult to apply for further credit, perhaps a mortgage, in the future.
She adds: ‘Providers which do offer an eligibility check clearing state that it will not affect your credit rating, but those who don’t have the eligibility check don’t always state any effect on your rating just an “apply now” link, so consumers need to be really careful when applying for credit.’
The inability to do a soft search could prove a particular problem for people with credit card balances looking to transfer them over to an interest-free deal, as they may be less likely to have the kind of rating that made them a certainty to be accepted.
Both banks offer among some of the best balance transfer credit cards around, with HSBC offering 25 months interest-free in return for a 1.5 per cent transfer fee, while Tesco Bank offers a 28-month balance transfer deal with a 2.98 per cent fee.
This is just one month shorter than the longest interest-free deal available, offered by Sainsbury’s Bank.
Tesco Bank told This is Money it planned to introduce eligibility checking on its website later this year, and that four of its credit cards could be soft searched through comparison site MoneySupermarket.
Meanwhile HSBC said in a statement: ‘HSBC has a range of credit cards to meet customer’s needs, and when making a lending decision rely on a number of factors which are available to customers -for example their credit score.
‘We don’t currently offer an eligibility checker on our direct channels, but do work with key aggregators to support customers to understand their likelihood of acceptance.’
Of the seven HSBC credit cards, just the balance transfer card and its Purchase Plus card – offering 0 per cent interest on purchases for 18 months – are available to non-HSBC customers.
Tom Platt, chief commercial officer at credit comparison site TotallyMoney, said: ‘Unfortunately, eligibility checking is still not a universal experience, despite the benefits to both customers and lenders.
‘Not only does eligibility checking let customers apply for a product with more confidence, but lenders are much more likely to get applications from the kinds of customers they’re actually looking for. It really is a win-win situation all around.’
Can you check your rate before you apply?
But while eligibility checking allows potential applicants to see the likelihood of being accepted, it doesn’t necessarily show them what APR they’ll get, or, if applying for a balance transfer, their credit limit or the length of their interest-free term.
Lenders have to use a representative APR, which shows the rate offered to 51 per cent of those accepted.
For example, Tesco Bank’s balance transfer credit card states applicants may get a 0 per cent interest period of 22 or 16 months, rather than the headline 28 months, but
Research from TotallyMoney and personal finance site Moneycomms found the length of balance transfer offers could be slashed by 50 per cent, or 14 months, and APRs by 15 per cent, compared to the headline rate customers applied for.
Meanwhile research last summer by personal loan provider Zopa found the majority of UK loan providers wouldn’t show customers the actual rate they would get until after they’d completed an application, which it described as ‘rate roulette’.
Some credit comparison services like Experian have introduced ‘guaranteed rate’ services where the rate people see before they apply is the rate they’ll get, but this is not as widespread as eligibility checking, with fewer credit card providers offering this.
Platt added: ‘Although eligibility checking is a positive step forward in the industry, there’s still much to do.
‘We work hard with lenders to push for more products that offer pre-approval and guaranteed rates, as this lets our customers know in no uncertain terms whether they’ll be accepted, as well as the APR they’ll get, before they apply.
‘By equipping our customers with this essential information upfront, they are protected from being rejected and harming their credit score as a result.’
Common misconceptions about credit reports and scores
This is Money, along with information from TotallyMoney’s annual financial awareness survey 2019, have revealed some common misconceptions people have around their report and score.
The survey was based on a nationally representative sample of 2,000 UK adults, commissioned by TotallyMoney and conducted by OnePoll.
1. Checking your credit report will impact your score
Some 23 per cent think checking their credit report will harm their credit score. This isn’t true.
A free credit report won’t affect your score or rating, so customers can check it regularly without any harm.
2. You have a universal credit score
The majority of people believe they have a universal credit score. In fact, all customers have more than one credit score.
The score varies depending on the credit reference agency that provides the report.
There are three credit reference agencies: TransUnion, Experian and Equifax. Each one has a different scoring system.
3. Savings improve a credit rating and score
Around one in five believe having savings improves their credit score.
Savings aren’t a type of credit. They won’t appear on a credit report or affect your score.
4. Earnings affect a credit score
More than half think their earnings affected their credit score. How much you earn has no impact on a score.
It’s about how well you manage your credit.
5. Being paid monthly has a positive impact
Another 27 per cent think being paid monthly has a positive impact on their score.
When you’re paid, and how much you earn, doesn’t influence your credit rating.
Meanwhile, 26 per cent admitted their knowledge of credit reports was poor, showing more needs to be done to help inform people.
THIS IS MONEY’S FIVE OF THE BEST CREDIT CARDS
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