Credit card application rejected? -  Credit Scoring Explained

When you apply for a credit credit, lenders check your credit record with specialist credit agencies that collect information from the courts, lenders and the electoral roll and undertake a process known as credit scoring.

A consequence of the credit crunch and subsequent economic downturn has been a marked increase in the number of people being turned down for a credit card. Figures from the UK Cards Association reveal that almost half of all credit card applications are being rejected, with 48% of applications turned down in 2009 compared with 42% in 2008. Prior to 2008, it is estimated that only a third were rejected.

Credit scoring is, specifically, a numerical calculation by a credit card issuer assessing your suitability to obtain credit credit from them and also the likelihood of you maintaining regular payments.

Credit cards for people with a bad credit rating or people new to credit

Card	Intro Rate Balance Transfers	Intro Rate Purchases	Representative APR (variable)
aqua	-	29.73%	29.7%	Details / Apply
	Don’t take no for an answer - apply for an aqua Classic credit card, great for people who are getting their finances back on track Suitable for self-employed applicants or individuals with a poor credit history
	Representative Example Your interest rate for purchases is 29.73% p.a with a representative 29.7% APR variable if you borrowed £1,200 and repaid it over 12 months
Aquis	-	29.8%	29.8%	Details / Apply
	Whether you’re new to credit or have had a few credit issues lately, get back on track with an Aquis Visa Card
	Representative Example If you spend £1,000 at an annual interest rate of 29.8% (variable) your Representative APR will be 29.8% (variable)
Capital One Classic Capital One, Trent House, Station Street, Nottingham, NG2 3HX	34.9% (Fee: 3%)	34.9%	34.9%	Details / Apply
	More tolerant of individuals with poor credit history
	Representative Example 34.9% APR representative variable 34.94% p.a.variable on purchase £1,200 credit limit
Vanquis Visa	-	39.9%	39.9%	Details / Apply
	Suitable for people new to credit or people with poor credit record
	Representative Example Purchase annual interest rate 39.94% (variable) Amount of credit £1,000 Representative 39.9% APR (variable)

It's not only individuals with past credit problems that are turned down, having a good credit record is no guarantee either. Although your chances of being accepted for a card are better if have a respectable financial record, in some cases you may be denied if you do not have another product with the firm or have a “thin” credit file - that is you have no credit history for them to judge your creditworthiness. For instance if you have never taken out a card or a loan before.

Credit card companies operate their own credit scoring rules, which take into account whether an individual is a good risk for a credit card. Credit scoring can go further: banks and other lenders can use the system to decide whether an individual is the sort of customer they want.

This leads to anomalies: the same person could be accepted by one credit card issuer, but rejected by another, based on identical information. Some of the newer banks, especially those operating over the internet, appear to have very strict credit scoring criteria, suggesting that they are looking for better off customers, rather than simply those with a clean credit record. 

Sometimes a provider may decline your application if you always pay off your debts in full because you are not regarded as potentially profitable customer compared with others who periodically incur interest charges. It is the credit card company and not a credit reference agency that sets credit score criteria. There is no obligation on a credit card issuer to reveal the criteria it uses, and most keep the exact details secret in order to deter fraud.

The points that matter on a credit score, and the weight given to individual criteria will differ from lender to lender and even from product to product. A gold or platinum credit card, for example, will have tougher rules than the standard card.

All standard credit scores start with the negatives: defaults, CCJs and bankruptcy. Once the lender has checked these and looked for poor payment patterns, it will then go on to make more subjective judgements based on the applicant's credit reference agency file and, of course, on the application form.

Homeowners will score more better than people in rented accommodation, and permanent employment is rated more favourably in comparison to self employment and unemployment. Married people, in particular married men, usually have a higher credit score than their unmarried counterparts. Other criteria such as having the phone line in your name as well as being on the electoral roll will help.

A track record in managing credit successfully is most likely to count in your favour. Lenders want to know that the person they lend to can handle the debt, and the best way to demonstrate this is to have borrowed before, without running into trouble. A couple of credit card accounts in good order, or a personal loan, will be plus points. Too much debt, though, will reduce a credit score.

A poor credit score will cost you money

The best credit cards deals are only open to people who meet the credit scoring requirements set down by the main credit card issuers. People with a poor credit score, or a blemished credit record, will not be able to take out the market leading card and will instead end up paying more in interest charges.

There are credit card companies who are targeting individuals with poor credit history.

For instance the Capital One Classic is more tolerant of individuals with a bad credit history and people who may have been refused credit in the past However the card purchases will be charged at a high APR (annualised percentage rate).

Critics of these cards say that individuals who already have a problem managing their borrowings should not be offered more credit, especially not at these high rates. Anna Bowes, of Chase de Vere, an independent financial adviser, says: "How will people with existing debts be helped by having to pay interest rates of 29.9 per cent?" 

However Capital One says that ownership of its card enables people who have had financial problems in the past to rebuild their credit history. A spokesman says: "We offer wider access to credit cards than most banks, but there is a price to pay for that. It is a trade-off between risk and price in the same way that if a motorist has a lot of crashes he will pay a higher insurance premium."