If you apply for a credit card, your chosen provider conducts a comprehensive assessment of your eligibility. In order to minimise the risk of accepting a high-risk applicant, they will check you against a specific criteria to determine your eligibility.
That’s not to say that you are not guaranteed a credit card if you fail to meet this criteria. You could apply for a credit card with the Post Office, for instance — they are noted as one of the best credit card providers for those looking to rebuild their credit score, and may accept your application, subject to eligibility.
However, there are still some factors that will impact your credit card eligibility. Here are a few you need to know.
1. A high utilisation rate on your credit card.
Your credit card utilisation rate refers to the amount of credit you have borrowed on your account, given its limits.
The best advice from financial experts stipulates that, in order to nurture a good credit rating (amongst other factors), you should use no more than 30% of your available credit at any one time, and ideally less than 20%.
This might seem counterintuitive — if you have credit there to use, why not use it?
In truth, if you draw too heavily upon your available credit, it signals to credit card companies that you might be struggling to pay back your debt. It also implies that you have few or scarce other revenue streams outside of your credit.
Such a situation would make you a high-risk candidate for a credit card, and you will be less likely to be accepted for a credit card in the future.
2. A history of late or missed credit payments.
When you have a credit card, you are required to pay off any outstanding debt by the date stipulated by your provider. Failure to meet these payments, either on time or at all, results in delinquencies.
If you have multiple delinquencies in your account, your selected credit card provider will flag it to credit bureaus. These are dedicated companies that record and centralise all data on customers and their credit history.
It is worth noting here that most card providers will not flag your delinquency to the bureaus until 30 days after you’ve missed your final pay date.
These delinquencies can stay on your credit history for up to seven years and, if you have too many of them, your eligibility for a credit card will be impacted.
3. A history of multiple hard inquiries on your account.
There are two types of inquiry that can be made into your credit history: hard inquiries and soft inquiries.
A soft inquiry is a check instigated by yourself, when you’re checking your credit score for example.
A hard inquiry refers to when a credit card provider performs a check on your credit history as part of their assessment of your credit card application.
When companies check your account, they conduct a hard inquiry in order to get the relevant information about your credit history — missed payments on bills, for instance, or late payments for debt.
Hard inquiries stay on your account for up to two years, but will only affect your overall credit score for a few months.
However, multiple hard inquiries on your history could indicate to card providers that you are actively looking for multiple loans — loans that you may struggle or be unable to pay back. As a result, credit card providers may be reluctant to accept your application.
4. An absence on the electoral roll.
The electoral roll is a list of everyone in the UK and Northern Ireland that is registered (and therefore eligible) to vote, and comprises the electoral register and the open register.
The former lists the name, address, and electoral number, and is used to combat voter fraud and other crimes, identify people for jury service, and verify identities during credit card application.
The open register, however, is not mandatory. This lists the same data as the standard register, but that data is able to be purchased by businesses for marketing purposes.
The main electoral register is used by credit card companies to verify your identity and confirm your personal details. Consequently, if you are not on the electoral register, you will be unable to build a good credit score. If you are not currently registered (or want to check), visit GOV.UK.
5. A relationship with others with a poor financial history.
Credit card application checks performed by providers are very thorough. In order to minimise the risk that they give a credit card to a risky candidate, companies perform a number of extensive checks, including looking at who you are financially connected to.
This can be anyone, of course, but usually refers to a romantic partner with which you have joint credit with, for example, with a shared credit card or a mortgage.
While this is fine in itself, if they have a poor credit score, a series of delinquencies in their credit history, and so on, this can cause issues. Credit card providers will see this when they conduct a check on you as part of your application, and it may negatively impact your own eligibility for a credit card as a result.
When you apply for a credit card, your chosen provider takes into account a wide range of factors. The points listed above are just a few of the things that they will consider, and give an insight into how thorough these checks are. If you are considering applying for a credit card this year, bear these in mind as you do so and take steps to strengthen your application accordingly.