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with help from
Government Legislation

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Have you been tempted by bargain borrowing rates –only to find when you apply that the rates are mysteriously higher? Then you’ve been a victim of risk-based rates. Despite the base rate standing at 4.75 pc, there are personal loans available at around 6 pc and no end of cheap credit card offers. But these are often risk-based interest rates which are only available to those with excellent credit ratings.
More than four out of five lenders now offer risk-based personal loans, according to a survey by independent price comparison website uSwitch. And major credit card companies including Barclaycard and Capital One offer different rates depending on how well you score on your credit rating.

Smile, the Co-op Bank’s internet bank, and Liverpool Victoria, for instance, have risk-priced loans over £5,000 available at a competitive 6 pc. So you could apply for the loan and find you’re offered one at nearly double the rate. Goldfish, on the other hand, has a flat rate of 6.2 pc for phone applications, so you’re either accepted or rejected. Barclaycard’s rates on its classic card range from 15.2 pc to an eye-watering 26.3 Pc.

The clue to risk-based rates lies in the word ‘typical’ appearing next to the quoted APR. A typical rate only has to be available to at least 51 pc of new customers. The danger with this form of credit is that borrowers often don’t realise the rate might not be available to them. And if you decide the credit’s too expensive once you ye applied for it, you could damage your credit record. That’s because a record is kept of each application at the credit reference agencies used by lenders. Too many applications are frowned upon. Paul Schofield of uSwitch says: ‘Two years ago very few lenders did risk-based pricing; now most of them do. Rather than apply blindly, people need to do some research first by visiting comparison websites or branches in the High Street.’

Other factors affecting your credit score are late payment of bills, and not being on the electoral roll for three or four years. More serious are County Court Judgments (CCJs) when you’ve not paid off loans. Lenders don’t let you know what your credit score is, but now you can find out how you’re likely to score by going online to the credit reference agencies’ websites. Both Equifax and Experian have launched the service this summer. Once you’ve signed on, you’ll be told whether your score falls into a range varying from very poor to excellent. It will also tell you why you’ve scored badly in certain areas. For instance, you might have moved recently and not registered on the electoral roll: lenders like signs of stability. Or you may have missed a month or two’s payments on a credit card.

If any of the information about you is misleading, you can correct it online by filling in a Notice of Correction, which will be seen by lenders when they’re deciding whether to give you a loan. You can also fill out a Notice of Dispute to have incorrect information investigated. This will go back to the lender which put the error on your record. And if your information is linked to someone else who is no longer connected to you, such as an ex-spouse, you can fill out a Notice of Disassociation. Equifax charges £11.75 to get your credit score. Experian only makes it available to members of its Creditexpert service which costs £49.99 a year, though you can get a 30-day free trial and access your score for £4.99.

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