New research from Which? reveals credit card companies are adding insult to injury by keeping consumers in the dark about why applications are rejected.
Which? has found worrying levels of dissatisfaction with the way that credit card rejections are currently handled, with lenders failing to give constructive advice when they turn people down.
Nearly half (48%) of those who were turned down for a credit card in the past two years were dissatisfied with the lack of advice and information about the refusal. The most common reasons for feeling dissatisfied were poor communication (31%) and a lack of evidence about why the application was rejected (29%).
Eight in 10 (79%) say they weren’t given specific reasons for the rejection, with three in 10 (30%) telling us they were not given any reason at all, and half (49%) just told to check their credit file.
Barclaycard had the highest percentage of people who were told more than ‘check your credit file’, but this was still less than a quarter (23%), and MBNA had the lowest percentage at 9%.
Lenders must tell you if you’re rejected based on information from a credit reference agency, and provide details of the agency, although they do not have to give any more information.
Which? executive director, Richard Lloyd, said:
“Credit card providers are letting people down by failing to give them constructive advice after a rejection. We want lenders to give a useful reason for a refusal and practical tips so borrowers can take steps to improve their chances of being accepted in the future.
“We also believe people should be able to shop around for credit without being penalised. We’d like all companies to use quotation searches so people can see whether they may be accepted without a full application footprint being left on their credit file. People should be put back in control of their credit.”
One of the best ways to make sure your application has the best chance of being accepted is to check that the card you’re applying for is right for you. A handful of comparison sites and lenders offer a quotation search, allowing lenders to generate a quote based on a borrower’s circumstances and show the likelihood of them being accepted. This also has the benefit of allowing you to shop around for credit without it showing on your credit file.
Notes to editors:
1. Populus, on behalf of Which?, interviewed a representative sample of 2,013 UK adults online between 17th and 20th May 2013. Data were weighted to be demographically representative of all UK adults. Populus is a member of the British Polling Council and abides by its rules.
2. Our research found of the four in 10 (41%) people who have applied for a credit card in the past two years, three in 10 (29%) have been rejected at least once.
3. The Consumer Credit Act states that when a rejection is based on information obtained from a credit reference agency, the creditor must tell the borrower that this is the case, and provide details of the agency concerned.
4. An unsuccessful application, or an increased APR, can sometimes result simply from a mistake on your credit file, or unnoticed fraudulent activity. Check your £2 statutory credit report from each of the three main reference agencies to ensure the information they hold about you is accurate.
5. Top tips for improving your credit rating:
- Make sure you’re on the electoral roll as this increases your chances of being accepted.
- Pay your bills on time as missed payments stay on your credit file for at least three years.
- If you’re rejected, don’t reapply straight away as too many applications in a short period may make lenders reluctant to lend to you.
- Cancel old credit cards as lenders may think you don’t need additional credit.
- Review your credit reports to make sure the information is up to date.
6. This autumn, the Government will consult on consumer credit regulation. The Office of Fair Trading currently regulates credit, however this regulation will move to the Financial Conduct Authority (FCA) next April which will be a golden opportunity to clean up credit. Which? has set out five ways the FCA should act to introduce stronger rules that put consumers in control of their credit:
> Ban excessive default fees and charges – the FCA should require that the level of default charges should reflect lenders’ actual costs, and there should be a cap on the total amount of default charges.
> Crack down on irresponsible lending – the FCA should enforce strong rules on affordability checks that properly take into account a borrower’s income, expenditure and ability to repay the debt, including any outstanding credit commitments.
> Put people in control of their credit – end unsolicited increases in credit limits, unauthorised overdrafts should be opt-in only and there must be a limit to the number of times high-cost loans can be rolled over.
> Clear and transparent information – the cost of credit and all fees and charges should be transparent, and for high-cost credit should be displayed clearly as pounds per £100 borrowed over 30 days. Credit products should come with clear health warnings explaining the consequences of missed payments.
> Swift and early intervention for people in financial difficulty – the FCA should force lenders to freeze charges for borrowers in difficulty, and prevent them from charging interest on high-cost loans beyond 30 days after borrowers default. Lenders must help borrowers in difficulty and refer them to free independent debt advice.
Press Release: Personal Finance