Imagine this – you need a new washing machine but don’t have the cash to buy one. After looking at all the available credit options, you decide that applying for a credit card would be the best for you.
So, you choose the one that you think suits your needs, you fill in the application form, submit it and cross your fingers. Unfortunately, you receive a response from the credit card company saying that your application has been rejected. Why might that be and is there anything you can you do about it?
Well, there are a few things you can do to try and understand why you’ve been declined for credit. The first is to ask the lender whether you’ve been rejected because of something on your credit report and, if you have, to ask which credit reference agency they used. Once you know this you can start to look into what you can do to put it right.
And, surprisingly, there are a lot of reasons why you might be rejected that are not because you’ve done anything wrong. In fact, one of the most common reasons why you may be refused for credit is….
You haven’t borrowed from lenders before
As unbelievable as it may seem, having no previous history of borrowing can count against you. That’s because when you make an application for credit, the first thing the lender will do is check your credit file to see how good you are at paying back what you owe, on the dates you agreed to do so. If they can see you’re a reliable payer, they are more likely to give you credit. If they can’t make that assessment, because you’ve never had credit before, they’ll probably turn you down. This may seem unfair, and in a sense, it is, as you’re being penalised for managing your money well and not requiring credit. And it puts you in a ‘catch 22’ situation, where you can’t build your credit history because no-one will give you credit and no-one will give you credit because you’ve got no credit history!
However, there is a solution. You could try applying for a credit builder credit card. These are specifically designed for those with bad credit or people who have no credit history so can’t apply for the usual cards on offer. These cards have different criteria and are more likely to accept you with a poor credit rating. However, there is a price to pay – the cards often have a higher APR than some credit cards. Once you’ve built a strong credit history you’ll be able to apply for other cards, with more favourable interest rates.
Mistakes on your file
If you think you’ve always been good with your payments and you’ve not missed any, it may be worth having a look at your file to see if there are any mistakes on it that could be causing you problems. As well as mistakes, there could also be important information missing about your reliability at paying the right amount, on time. If you see something on your credit file that you don’t recognise or you think it’s nothing to do with you, contact the credit reference agencies and ask them to investigate or add a notice of correction, which lenders are obliged to take into account when you apply for credit.
You’re not on the electoral roll
Lenders want to know that you are who you say you are and you live where you claim to live. If they can’t find you on the electoral roll, they’ll start to wonder if you’re a real person or not. This check forms part of their anti-fraud procedure, so if your details are incorrect or incomplete, you’ll likely be declined for credit. So, if you’ve moved house recently, update your details on the electoral roll. And, if you’re not registered to vote, do it now and, if you don’t fancy voting, you don’t have to – it’s your choice.
You’ve applied for lots of cards
You may have applied for a lot of credit cards without realising that each application will result in a note being placed on your file. If another credit card provider sees that you’ve applied for lots of cards, it may look like you’re desperate for credit and put off potential lenders. If this sounds like you, don’t panic, just leave it for about six months and then try again.
However, when you do, don’t use the scattergun approach – just applying for loads of cards and hoping one accepts you! The smart way to apply for a credit card would be to use one of the soft search engines, like the one offered by moneysavingexpert. This clever tool allows you to see which cards you are likely to be accepted for, before you make the official applications through the lenders. Applying this way will prevent you from making applications and getting turned down because you have a poor credit score, without leaving a mark on your credit history.
You’ve recently moved house or job
Sadly, just moving house or job can make you seem less financially stable to lenders. Even if the job you now pays three times what you earned before and the house you’ve moved to has allowed you to free up £500 of disposable income each month (an exaggeration, but you get the idea), you could still be turned down. It’s a bit of a strange one again and seems to be a bit unfair, but leave it for about six months, or wait until you’re out of your probation period, and try again.
Old issues are causing you problems now
CCJs will remain on your credit history for a period of six years, so you could have had a minor slip a few years back, overlooked something important and ended up with a CCJ. Until the six years have passed, there’s not much you can do about it. However, once the six years are complete, you should check your file to make sure that the CCJ now shows as ‘satisfied’ on your credit file. If it doesn’t, you should contact the county court and ask them to issue you with a letter of satisfaction. You can then send this to the credit reference agency so they can update your file to show the correct information.
You’re not the lender’s type
Yes, that’s right – you may have been declined a credit card, simply because you don’t fit the lender’s profile. Even if you have a great credit score, it may be that the lender you are applying to only accepts applications from people in a certain age group or who earn over a certain amount, or they only lend at a certain APR to those who have a perfect credit score and those who don’t get a different APR. Whatever the reason, don’t assume that because you’ve been accepted for a credit card with one lender, all the others will lend to you too.
Things are just more difficult now
Since the credit crunch, it’s become more difficult to get accepted for credit. Gone are the days when you could have 5 or 6 credit cards in your wallet, all with £10,000 limits on them. Now card providers are more choosey about who they give cards to, and a score and level of income that may have earned you a card in the past, just won’t cut it today.
The level of credit you have access to is too high
Even with a perfect credit score you will get to a point where lenders say ‘no’ if you’ve lots and lots of credit available to your name already. Say, for instance, that you have those 5-6 cards in your purse or wallet, each with £5,000 limits in each of them. When a potential new lender looks at your credit file, they’ll see those cards and they’ll also know what your level of income is. So, they can easily see how likely you are to be able to keep up with your payments if you were to spend the maximum on each of those cards. And rightly so, as if you had 6 cards, and you maxed-out the £5,000 limit on each, it would be a hefty part of your salary being diverted just to pay for them every month.
You’re the victim of fraud
If you’ve borrowed before; you pay the right amounts at the right time; you don’t have access to too much credit; you’re on the electoral role; have a stable job and have not moved home recently, but your still getting rejected for credit cards, it may be worth you checking your file to see if you’ve been the victim of fraud. If you see anything on your file that you don’t recognise or that you think is nothing to do with you, contact the credit reference agency and query it. If the information is incorrect, you should ask for it to be removed.
*Providing you maintain your minimum payment on time and stay within your credit limit. Not doing so could harm your credit rating.
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By Linzi Nuttall