Why was I turned down for a credit card with a good credit history?

More than half of prospective borrowers are likely to be turned down when applying for credit, new research shows.

At the same time, three-quarters of the population believe they are creditworthy, so for many the rejection, which is usually without any explanation, comes as a shock.

Amanda McNally, 33, from Hampton Hill, South-West London, still doesn’t know why she was turned down when she applied for a Halifax zero per cent credit card in September 2011.

Mystery snub: Amanda McNally, with her husband Michael and baby Beatrice, always pays off all her bills

Amanda, who lives with her husband Michael, 52, a new-business developer for a private music academy, and their 11-month-old daughter Beatrice, wanted the card to pay for house improvements.

Not for a minute did the part-time personal assistant think she would be rejected as she had paid off her previous credit card and had no other debt apart from their mortgage, where the payment history is spotless.

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She says: ‘Before I stopped using my old credit card I always paid it off monthly and in full. I also didn’t have any other loans at the time and I was on the electoral roll, which is meant to help your credit score.’

But Halifax sent a letter telling her, without explanation, that her application had failed.

‘We thought it might have had something to do with my salary as I wasn’t earning very much at the time, but that was a guess. I’m still none the wiser,’ she says.

How to avoid the shock of getting turned down

To improve the chances of being accepted for credit, first review your credit file regularly to make sure all information is correct and up to date. 

Anyone can check their credit rating by using Experian, Equifax or CallCredit. By law, consumers can request a copy of their  file for no more than £2. 

The agencies also offer continual access to your record, plus alert services, for about £7 a month, though this is of doubtful value.

A borrower’s credit history, including missed payments or defaults, will stay on file  for six years.

 Avoid making too many credit applications in a short period as this can signal  to lenders that you are in trouble or desperate. 

Equifax spokesman Neil Munroe says: ‘Lenders are looking for signs that you are capable of repaying money you have borrowed so it’s worth considering opening an account to establish a credit history, even if you pay it off in full at the end of every month.’ 

Consumers struggling to get credit should first approach their own bank or building society as they already have a picture of their financial history and are therefore  more likely to lend.

How to check your credit file and get a 30-day free trial from Credit Expert

One problem is with customers who have little history of borrowing, so lenders find it difficult to assess risk.

James Jones, head of consumer affairs at Experian, one of the three big credit reference agencies, says: ‘Lenders want to see how much of a risk you might be in terms of meeting your repayments.

‘Not having enough information could itself make you riskier.’ Another possible reason for rejection is applicants’ ‘financial associations’, such as joint bank accounts or mortgages with partners or former partners. If one partner is in financial difficulties, both could be affected.

Often customers are turned down because of mistakes on their credit file. The credit agencies argue that errors are rare.

But Kevin Mountford, head of banking at comparison website Moneysupermarket, warns that errors can have dire consequences for applicants who are treated as ‘guilty until proven innocent’. This means that unless someone makes a challenge, it will remain on their file indefinitely.

The agencies – Experian, Equifax and CallCredit – watch every penny you borrow, including mobile phone and other contracts, along with where you live and with whom. This information is then made available to lenders for a fee, so if you find a mistake on your credit file it is vital to try to rectify it as soon as possible.

You can do so by either contacting the organisation that has made the mistake or notifying the credit agency, which will then take it up with the lender. This will usually be resolved within 28 days.

If the lender refuses to rectify the mistake and the credit agency fails to help, you can take your complaint to the Financial Ombudsman Service.

While a credit agency may not have made the error, as a data provider it is responsible for making sure that the information it holds is accurate.

Complaints about credit agencies have increased by 58 per cent in the past financial year, but the total number is still low at 109.

FOS spokeswoman Samantha Hargreaves says: ‘It’s still a relatively small number compared with complaints about other products, but people don’t know that it’s a complaint they can make and that’s partly why we see less of them.’

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