Credit card crunch as reject rate soars

Credit card companies are clamping down with up to 3.27 million people seeing applications for plastic turned down in the past six months, new research from MoneyExpert.com reveals.

The independent financial comparison website’s research shows rejections are up by 17 per cent in the last six months compared to the six months to March 2007, when around 2.7 million credit card applications were turned down.

MoneyExpert.com says increasing levels of bad debt hitting banks as well as the current credit crunch has prompted many firms to tighten rules on new applications.

The figures show almost one in ten people across Great Britain (9 per cent) have seen a card application turned down during the past six months. MoneyExpert.com says more people are rejected for credit cards than for any other financial product.

Sean Gardner, Chief Executive of MoneyExpert.com, said: “Credit card companies have had a rough ride with bad debt so it’s no surprise that they are becoming stricter on who they’ll lend money to.

“And with so many of us feeling the pinch following five interest rate rises since summer last year, credit is undoubtedly harder to come by than it has been for a long time.

“It’s also the case that many lenders have reduced the amount of available credit on offer to applicants – another effect of introducing stricter lending criteria.

“But that’s not to say that there aren’t good deals out there – it’s just that fewer people will be able to take advantage of them now that the financial environment has become stricter. If you can’t convince a provider that you can afford to repay them, they may not take a risk on you.

“The real worry is that many people who are already in debt will find it increasingly difficult to drag themselves into the black. As your disposable income decreases, the hardest hit are those who owe money as simply servicing your debt can become a burden, let alone paying it back.”

Young adults are most likely to have a credit card application refused – the research showed that 15 per cent of people aged between 25 and 34 were turned down in the last six months, more than any other age group.

Those approaching retirement are by contrast considered the lowest risk by credit card companies, with only three per cent of people aged between 55 and 64 having been rejected in the same period.

MoneyExpert.com offers a free credit profiling service which helps people to understand their likely credit profile by answering straightforward questions about their credit history. MoneyExpert.com then recommends products from financial providers who lend to consumers with similar profiles, which lessens the likelihood of rejection.