Donna Werbner investigates the secret reasons why credit card applications are being rejected.
In the last half of 2007, more than three million applications for credit cards were rejected.
That's an increase of nearly 20% in just six months.
But still, I must admit, the letter I received last month came as a shock. "Thank you for your application," it read. "Unfortunately on this occasion it has been unsuccessful..."
The Credit Control Patrol
I had been warned by a fellow writer at The Fool that, to get the card I wanted (the then market-leading Capital One cashback credit card), my credit history would have to be whiter-than-white. So I'd taken the trouble of signing up for a free credit report from Experian beforehand, to check whether I had (inadvertently) acquired a chequered past.
But the report merely confirmed that I had never in my entire life missed a bill, credit card or mortgage payment.
Of course, there are other reasons that credit card lenders will reject an application. Failing to register to be on the electoral roll, for example, will mean many will turn you down. Lenders also prefer you to have a long history of getting credit and paying bills.
But, being a Foolish writer, I had the inside track on all this. And all should have been in order.
So it made me wonder: what do you need to qualify for a top-class credit card nowadays? The difficulties sub-prime borrowers are facing following the credit crunch are well-known - but what about prime borrowers? What do credit card companies now expect from them?
Rich As Croesus?
According to the letter, my application was rejected because my Capital One credit score was too low. But as far as I could tell, I had the "excellent" credit history required by company. What was it they were after?
I spoke to an underwriter at Capital One and she reassured me that there was "absolutely nothing wrong" with my credit file. She would not go into details about why I was turned down, but emphasised that a professional, such as a lawyer, earning £100,000 a year, would have no problems getting the card.
The press office confirmed that, as well as expecting applicants to have an "excellent" credit record, evidence of a good payment history and few outstanding debts (as far as I know, no problems so far), "the applicant's personal circumstances (i.e. employment status, income etc)" would be taken into account.
Now, admittedly, staff writers on The Fool aren't as rich as Croesus -- but we're not exactly on the poverty line, either. And I'm doing pretty well managing my finances this year, so I did not expect to have any problems paying off whatever I purchased on the card. Still, there's no doubt that, as I am not a lawyer and am some way off earning a six-figure salary, I did not fit the description of the `prime' borrower described by the underwriter.
But surely you do not have to earn such a high income before you are classified as a prime borrower? When pressed, Capital One refused to go into any more depth on the kind of "personal circumstances" they expect their applicants to have (although they have offered to review my case).
So I asked American Express, which currently offers the market-leading cashback credit card, whether their applicants were vetted on income and profession. And it turns out that they also take your salary into account when deciding whether to accept your application - but as long as you earn an income of £20,000 a year, you would qualify. Since it offers a higher rate of cashback (5%) in the first three months, this is the card I think I would go for now.
Secret Reasons For Rejection
Out of curiosity, I did a bit of digging to find out what else might cause credit card companies to turn down an applicant with a spotless credit history. One source (who did not want to be named) at a credit card lender said that sometimes, companies will turn down an applicant with an excellent credit rating if the applicant does not want to transfer a balance. The source explained that these companies usually charge a higher rate of interest on this type of debt. But purely by coincidence, I am sure.
Another secret reason why credit card lenders reject applicants could be when they have received information from your bank, without your knowledge or permission, that your incomings and outgoings aren't quite matching up (The Secret Way Banks Keep Tabs On You explains more about this underhanded practice).
Finally, it might be something more obvious than devious, such as a typo on your postcode or your surname -- most applications are checked automatically by a computer system, and a rejection can be triggered by a mistake a real live human would disregard.
If, like me, you have been turned down by a credit card company, don't give up hope. There are some credit cards out there for people who have no credit history or even a few black marks on their record (Halifax's Classic card is a particularly good example). But be warned, the rate of interest charged is almost double that of the cards aimed at `prime' borrowers. Personally, I would not even contemplate taking out one of these cards unless I was certain I could pay off my credit card in full every month, as otherwise the interest on debt would escalate so fast, it might take decades to pay off.
I don't have that much in common with Rocky (or Rambo), and it's rare that one gets a chance to quote pearls of wisdom from Sylvester Stallone - but in this instance it seems appropriate: "I take rejection as someone blowing a bugle in my ear to wake me up and get going, rather than retreat." Perhaps this article will act as a warning to other credit card companies: The Fool is on to you...
More: Five Top Credit Cards
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