Shopping around for loan deals can 'give bad credit rating'

Consumers are being charged extra when they shop around to get credit, according to evidence heard by a leading group of MPs.

Many borrowers are unaware that they can risk getting a bad credit rating by shopping around for the best deal on a loan. This means that consumers may be better off borrowing from a credit card rather than shopping around for different loans.

The Treasury Committee met earlier last week to hear evidence on how consumers' credit ratings are affected by shopping around for the best deal.

David Kuo, director of MotleyFool.co.uk, agreed said that this was unfair for consumers. He said: "It is almost like penalising somebody for browsing round the shops and charging them a higher price when they do come back to you afterwards."

But The Lending Standards Board, an independent watchdog, has recently announced a new Lending Code which will give consumers greater protection when borrowing, by monitoring the actions of lenders.