Experian is launching a new comparison feature that will offer people the chance to see the ‘real rate’ they will be charged before they apply for a credit card. But just two providers have signed up, so what can you do to make sure you’re getting the best deal?
Currently, credit card providers only have to offer their headline annual percentage rate (APR) to 51% of customers that apply, meaning the remaining 49% can be offered a more expensive deal. But it’s often impossible to know what you’ll be offered until you apply.
Which? explains how the new Experian service will work, how providers are able to use representative APR as a rough guide and steps to take to avoid losing out in the rate lottery now.
How Experian’s ‘real rates’ tool works
Experian’s new service will allow users on their comparison site to see the actual rate they’re eligible with select card providers – signalled with a blue star.
To provide you with the rate, it will do a ‘soft search’ on your credit record to determine your eligibility before you apply. Unlike a hard credit search, this won’t be visible to other lenders and won’t bring down your score.
But while the service is due to go live later this month, to date just Virgin Money and Capital One have signed up.
Experian is calling for more lenders to come on board and be more transparent about personal pricing. Amir Goshtai, managing director of marketplace & affinity, Experian, said: ‘Improving transparency for consumers so they know what they’ll get is something the industry should be striving for.’
Experian’s move follows the launch of its real rates for loans service in May which offers customers the chance to see personal pricing for Zopa, Likely Loans, Shawbrook and Lendable.
- Find out more: how to find the best credit card
Why representative APR is flawed
When you’re comparing credit cards, you’ll be given a representative annual percentage rate (APR).
This shows the total cost of borrowing (including interest and other fees) over a year, using the example of borrowing £1,200. It’s meant to make comparing the cost of deals easier, but it’s not perfect.
The Financial Conduct Authority (FCA) says firms are able to advertise a representative rate or deal as long as they give it to 51% of customers that apply. So providers can have different prices or offers for nearly half (49%) of customers that don’t meet its top-tier criteria.
This means when you apply for a credit card or loan, the representative APR is only a rough guide and you won’t know what interest rate you’ll be offered until you apply. The problem is that applying for a credit card or loan will leave a mark on your credit file and multiple applications for credit can harm your credit score.
So if you are unhappy with the personalised APR you receive once you’ve applied for one credit card, you might struggle to apply successfully for another deal.
How to find the best credit card deal for you
Experian’s tool will help boost transparency in the market, but it’s limited to just two providers, which might not necessarily have the right deal for you.
But there are things you can do to find the best credit card for your circumstances, whatever the provider.
When shopping around for a credit card you should thoroughly check the terms and conditions before applying. This should reveal if a provider is likely to vary the APR or terms of the deal based on individual circumstances.
You might be able to find the information in the product summary, as well as a likely range of interest.
It’s also worth looking for credit cards that offer an eligibility check before you apply. This will perform a ‘soft search’ on your credit file, which won’t affect your credit history and should reveal the deal you can expect, but not all providers offer this option.
- You can compare credit card deals based on their APR as well as a range of other criteria like the quality of the provider using Which? Money Compare.
How to boost your chances of getting the headline rate
If you want to boost your chances of getting the headline rate or deal on a credit card, you need to make sure your credit report is in good order. Any wrong information could be a red flag to lenders and may be dragging your credit score down.
That said, having a good credit report and score won’t guarantee that you get a headline rate or deal, as it will depend on the lender’s criteria.
Before applying, it’s a good idea to do your research, and use a soft search if possible, to ensure you have the very best chance of securing a good deal.
You can also look at ways of improving your credit score to increase your likelihood of being offered attractive deals in future.
- Find out more: how to check your credit score for free
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.