1 In 10 Credit Card Applications Rejected

Recent research into the credit card market suggests an increase in the number of people being denied on application.

Figures show that approximately 1 in 10 applicants will be turned down for a credit card as a result of the tighter lending criteria currently being practiced by most banks. Following the credit crisis, banks are now becoming increasingly nervous as to whom they give credit.

Already we have seen credit card company Egg cancel the accounts of 161,000 customers believed to be high risk. In turn this has triggered off much speculation regarding profit making and losses with customers sparking rumours that their accounts have been terminated simply because there is little profit in customers who pay their balances in full and on time.

Meanwhile a separate report has shown that banks are nevertheless gaining in excess of £530 million in profits from extra fees charged on credit cards, which just so happen to have gone up. It is estimated that these fees, which generally exist without being underlined or highlighted, equate to around £17 for every credit card customer in Britain.

According to one financial website, the number of denied credit card applications rose by 17% over the past 6 months. A spokesperson 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 last year, credit is undoubtedly harder to come by than it has been for a long time."

Following the global credit crunch it has become considerably more expensive for finance houses to borrow from one another. Many banks have consequently seen their profits come under substantial pressure and as a result are forced to recoup these lost revenues by seeking out new means. The principal formula which has been introduced, alongside eliminating 'non-profitable customers', seems to be that of hiking fees on other available products or product features.

The research carried out showed that the biggest fee incurred by customers is that attached to the 0% on balance transfer offers. This particular offer allows customer to switch debt on to a new card and not be charged any interest for a fixed period of time, usually 6 months. To many this may sound like a good deal, but what many customers fail to see is the handling fee charged for actually transferring funds over.

In the last 2 years this fee has been increased four-fold, from a mere 0.59% to a current average of 3%. Therefore anyone transferring £2,000 for example, would be faced with a fee of £60 which would be added to the outstanding balance.

In addition, many credit card companies have increased their charges for cash withdrawals while others are considering bringing back an annual cardholder fee.

Published on March 5, 2008