Why Are Credit Card Applications Rejected?

Being rejected for a credit card is not uncommon. Whether applying for a prime credit card or a credit card designed for people who have had past difficulties with credit, every issuer and every product will have specific criteria that individuals must meet in order to be accepted.

Stop sign in the desert

Obviously the specific criteria varies depending on the product, so issuers are able to offer a broad range of cards to potential customers, but if an applicant fails to meet the criteria, their application will be rejected.

To the individual who has been rejected, this might feel very personal, but it's not. Credit card issuers want to offer products to as broad a range of people as possible, but they also need their products to be as attractive as possible, so that people apply for them.

Being able to offer the best possible products is as much about which customers credit card issuers reject, as it is about who they accept. As such, issuers use sophisticated models, incorporating multiple data points, to forecast an individual's likelihood of default or bad debt. Of course these models can never be absolutely accurate, because everyone's circumstances are forever changing - people lose/move jobs, personal circumstances change, unexpected expenses or illnesses can reduce an individual's ability to pay back monies they owe - but within certain tolerances, and when viewed at an aggregate level, they are largely successful at assessing which applicants should be granted a line of credit and who is likely to pose a risk to their business.

The specific criteria are unique to each product and issuer, but there is some commonality regarding the criteria issuers expect individuals to meet. This does not mean that an individual who fails to meet any single one of these criteria will automatically be rejected, as different issuers attach different weights to the elements, but it can help us understand the more common reasons why credit card applications are rejected.

These reasons include:

Eligibility Criteria

Many credit card applications are rejected simply because individuals do not meet the specific eligibility criteria an issuer has published as the prerequisite for acceptance.

Every time a credit card application is made, the card issuer incurs charges for processing it (checking 3rd party credit reports, communicating the application result to the applicant, call centre/customer service operators etc), so they are keen to reduce the number of applications from people unlikely to be accepted. As such, many issuers publish specific eligibility criteria that customers must meet.

If individuals do not meet these criteria, they should not apply for the particular product as it will only harm their ability to access other products.

Application Errors

Although many application forms now check that valid entries have been entered in their fields as individuals progress through the form, this is not fool-proof. Many applications for credit are declined because of errors in the application form, especially where these errors could be viewed by an issuer as an attempt by an individual to fraudulently present their financial or personal status in a more favourable light.

Individuals should check every answer they offer, and pause to ensure they have answered as honestly as they can, even if this means delaying the application while they check facts and figures and the meaning of any terminology they are unsure of.

Credit File Issues

Credit card issuers are legally obliged to assess potential customers' suitability for credit, so that people who are not skilled at managing credit do not get into unsustainable levels of debt.

To do this credit card issuers use various data points, including 3rd party data supplied by one or more of the UK's credit reference agencies. Credit reference agencies collect and collate data regarding the available credit and payment histories of all UK credit holders. This data includes the number of credit cards, loans and mortgages individuals have, but it also includes payment information regarding other credit agreements such as utilities, mobile phone, paid TV and other contracts.

If an individual has shown (as demonstrated in their credit file) a propensity to miss payments, pay late, or fail to meet the full minimum payment, they are likely to be deemed a more 'risky' customer and will therefore find it harder to access credit.

Click here for more information about credit scoring.

Inadequate Credit History

When assessing a potential customer's suitability for credit, one of the main factors that issuers look to is the customer's past credit activity.

As above, where this indicates they struggle to manage credit, they are unlikely to be offered products, but when applicants have no credit history (or a very limited exposure to credit), issuers have little information to determine the potential risk a customer poses.

In this instance many lenders determine that the risk of bad debt outweighs the potential that a customer is going to be a good prospect and therefore they do not offer a line of credit.

One way that individuals with a limited credit history can position themselves to apply for products in the future is to take a credit building credit card. These products incur higher interest rates than standard credit card products, as the risk of delinquency is higher to the issuer, but they do enable people without a credit history to access credit, and thereby demonstrate that they can borrow and repay in a responsible manner. This, in turn, improves their chances of success when applying for better (and more affordable) products in the future.

Credit File Errors/Identify Theft

As any adverse entries identified by credit card issuers in credit files are likely to impact an individual's ability to access credit, it stands to reason that errors within a credit file might also impact an individual's ability to borrow. Errors could include incorrect associations with other individuals who have had difficulties. When people take joint products, cohabit, get married etc. credit reference agencies link their records to show financial association. When these associations end, credit reference agencies should be alerted so that they can remove the association.

Although the Data Protection Act 1998 requires that the data credit reference agencies hold must be relevant, accurate, appropriately processed for limited purposes, and kept only for as long as is necessary, errors do occasionally occur and these can result in perfectly creditworthy individuals being rejected.

Equally, where individuals are the subject of identity theft, a credit report will no longer be an accurate reflection of their behaviour and could well result in them being declined for products.

Individuals who find that there are errors in their file should contact the specific agency concerned - errors should take no longer than 28 days to amend. Individuals who have been the subject of identity theft should contact all UK credit reference agencies and the police.

Address Changes/ No Electoral Roll Record

Potential lenders like stability, so individuals who have just moved are likely to find it more difficult to access credit.

One way individuals can demonstrate permanence to potential lenders is to get themselves added to the electoral roll. This indicates that they are intending to stay in a particular location for some time, but it also helps issuers screen for identity fraud as a National Insurance Number is required to register to vote.

Individuals not on the electoral roll can apply at www.gov.uk/register-to-vote Employment Issues/Changes

Individuals who have just started a new job may find that they are rejected for credit products as probationary periods make an individual's future employment less certain. When starting a new job it is also more difficult for potential lenders to be certain that salaries stated in the application form are correct.

Equally, people who are self-employed may also struggle to access credit cards, especially those with volatile or seasonal incomes.

Overall Indebtedness

As of 2014, when they took over regulatory control of UK consumer credit, the FCA (Financial Conduct Authority) have required that UK lenders undertake 'affordability assessments' to ensure that they understand a customers' capacity to fund their debts, both current and potential, before lending to them.

As such, customers with high levels of borrowing, or with high unused credit limits (with which they could quickly incur large debts), may struggle to access additional credit, regardless of their prior credit

history. For this reason it often makes sense for individuals to close accounts, or reduce their credit limits, when no longer required.

Excessive Credit Applications

Unfortunately, where individuals are rejected for credit products for one (or more) of the reasons above, many compound the situation by applying for further, or multiple products.

Each application for credit leaves a mark on an individual's credit file, so potential lenders can see how many applications have been made. Lenders tend to view multiple applications in quick succession as a signal that an individual is in financial distress, and therefore they might have problems repaying the monies they owe.

When individuals are rejected by lenders they should consider carefully before applying again. If there are obvious reasons for a declined application, they should do what they can to remedy the situation. Where they are clearly applying for a product designed for customers with an excellent credit score, they should reassess the product they apply for, and instead find an issuer/product more inclined to accept them.

There are, of course, numerous other reasons why applications might be declined, and applicants should not be despondent if they are rejected. Most applications today are automatically 'decisioned', so it is unlikely a human will have assessed a particular circumstance.

Often the best course of action an individual can take upon rejection is to call the issuer they have applied to (assuming their application was undertaken online) for further details about why they were rejected. This can put an individual on the right path to remedying the issue leading to them being declined their preferred product, and help them increase their chances of acceptance in the future.


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