Lenders may be forced to open up

Posted by Richard Catlin in Declined Credit on 9 April 2009 - Richard is Marketing Director at checkmyfile.

Credit card and loan providers are set to be asked to be more transparent about the way they calculate the interest rates they charge consumers, as part of an Office of Fair Trading (OFT) review of their practices.

The OFT’s intentions were initially announced as part of the Pre-Budget report last year, when the Chancellor called for a plan to tackle anti-competitive behaviour - largely in response to the raft of mergers caused by the banking crisis.

One of the key areas that the OFT will be focussing on now is the role that credit reference agencies play in lenders’ decision making process, and the transparency of their risk-based pricing. The way that banks treat customers experiencing financial difficulty is also under the spotlight once again.

There has been a general tightening of credit scoring criteria since the onset of the credit crunch, but the average cost of credit has also been creeping up. Examples include both Egg and Capital One making massive hikes in their typical APRs in tandem with tightening up of their lending appetites.

Egg attracted criticism for withdrawing the credit facilities of thousands of customers, apparently because of alleged changes in their credit profile. Despite their claims, many of those affected were found to have near-perfect credit ratings.

As the amount of information that lenders are sharing with each other about consumers increases, the OFT is seeking to put together a framework of recommendations that will ensure that consumers understand how their personal information is used, and that they are treated fairly.

You can check the information that lenders use to assess any application you make for credit by checking your credit file online. Our reports are both the cheapest in the UK, and the most comprehensive.

Turned Down For Credit? Find Out Why.

Getting declined credit can be a huge blow to your plans, especially on potentially life-changing purchases like car finance or a mortgage. Even if you have a good financial history, there are plenty of reasons to get declined credit, and finding out why your application was declined and addressing this problem is the first step to making sure that you won’t be turned down the next time you apply.

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Was it an unhappy Easter for Egg boss

So, Easter is over and done with for another year - and so is the reign of Egg boss Ian Kerr, who has quit the online bank after only a year in charge.

As we reported back in February, the credit card giant caused controversy by writing to 161,000 of its customers to give them 30 days notice that their accounts were about to be closed.

Officially, Egg said that the credit worthiness of these account holders had either declined to such an extent that they were no longer suitable customers, or were at risk of doing so in the near future. However, thousands of disgruntled cardholders – including at least three millionaires - with good credit ratings have claimed that this is merely an excuse, and that they have been punished for paying their balances in full each month and hence not making Egg any money in interest payments.

Egg has denied that Mr Kerr’s resignation had anything to do with the controversy caused by the card cull, and maintain that their decision was purely based on the risk of customer groups falling into default in the future.

The move was part of a wider cost-cutting exercise by Egg owners Citigroup, which took control of the Bank in May 2007. The global credit crisis has seen many lenders tighten up their belts, and make their acceptance criteria more stringent.

This means that getting a good deal on a new credit card is not as easy as it once was. With lenders still with their hands in their pockets, access to a card that has credit card cheques available can be a real contingency to cover any unexpected downturns in your financial fortunes. The current Best Buy credit card which still offers the option to use credit card cheques is the AA credit card. With a Typical APR of 16.9% this is well priced, and at present the card has a 0% balance transfer offer for 12 months (the transfer must be done in the first 90 days of the account opening and carries a fee of 3%) and 0% interest on purchases of fuel and motoring and AA costs for 12 months. There’s also a cashback option of 1% for AA members or 0.5% for non-members, or generous reward points.

Published on 3 Apr 2008 by Richard Catlin

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