Lenders are turning down around 20% more credit card applications than they were before the onset of the financial crisis as they strive to reduce their debt exposure. Credit card providers are now turning down around 60% of applications compared to 50% before the credit crunch.
However, as far as the individual is concerned, a rejected credit application is the last thing they need. A good credit rating is essential in the current environment, but your overall credit score reduces each time you are declined for a credit card or loan. In turn, this restricts the number of deals you are likely to be eligible for.
It is still possible to get a new credit card, but you need to apply carefully and maximise the chances of your application being successful.
What credit card deals are available?
If you have an excellent credit rating then the world is still your oyster. If you are looking to move a debt over from another card, the Virgin Credit Card has the best balance transfer offer. Transfers are interest free for 15 months, although you will be charged a 2.98% handling fee. This is the longest 0% period in the UK giving you ample time to chip away at your existing balance.
There are plenty of other lengthy 0% deals out there including the Barclaycard Platinum, which offers 0% on balance transfers for 14 months with a 2.9% fee and the Barclaycard OnePulse for London based users which has a six-month 0% balance transfer period and can be used as an Oyster card when travelling around London. Alternatively, the MBNA Platinum offers 0% on balance transfers until June 2009 with a 2.9% fee.
However, while these cards are great for paying off existing debts they should not be used for further spending. They offer shorter interest free periods on purchases and as outlined in 'the interest-free credit cards that may charge you interest' article last week, the majority of card providers use a system whereby the cheapest debt is repaid first. This means that once the 0% offer on purchases comes to an end, you will be charged interest on that balance and your monthly payments will go towards clearing the transferred balance first.
Therefore if you want to keep on spending, take out a card that offers a 0% purchase rate that runs for the same length of time as its 0% balance transfer offer.
The Capital One Platinum is the market leader in this category as it offers 0% on both balance transfers and purchases until May 2009. If you use the card to make a balance transfer you will incur a 3% handling charge and once the 0% offer ends you will start accruing interest at the standard rate of 12.9%.
Alternatively, if you would prefer a card with a lower standard rate, moneysupermarket.com has an exclusive deal with Capital One. The 0% offer is slightly shorter - it runs until February 2009 - but the rate of interest you will be charged thereafter is just 9.9%.
Another option, if you are looking for a card to spend on, is the Halifax One, which charges no interest on purchases or balance transfers for 10 months. There is a 3% balance transfer fee. Once the introductory period ends, you will be charged the standard rate of interest which is 15.9%.
If you always pay off your card balance in full then a credit card that offers cashback or a loyalty scheme is the best option. There are plenty to choose from including the MBNA Platinum Rewards Card with one point for every £1 spent and the Shell Citi MasterCard with a 3% rebate on any fuel bought at a Shell petrol station.
However, it's vital to remember that these deals are only available to those with excellent or good credit scores. With lenders tightening their criteria there is simply no point in applying for these cards if you won't qualify for them.
However, there are steps you can take to improve your credit score, so this is worth looking into before making an application as it may give you a few more options.
How to increase your chances of being accepted
Lenders are looking at your overall debt exposure. So if you have a number of credit cards in your purse or wallet ask yourself this question - if you were to spend up to the limit on all of them could you afford to repay the total debt? If the answer is 'yes' you shouldn't have too many problems. If the answer is 'no' you need to take action:
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Close down credit card accounts you no longer need - the amount of credit you have available will affect your credit rating. So if you have dormant accounts, close them.
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Check your credit profile - ensure you are clear as to how your credit score currently looks. See if there are any steps you can take to boost your profile such as correcting any errors, paying bills on time and of course reducing the credit you're currently paying. You can obtain a copy of your credit report from the reference agencies Experian and Equifax.
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Use Smart Search - This will search for cards based on your existing profile showing deals you're likely to qualify for.
- Set up direct debits - This way you can guarantee you won't miss a payment and always pay off at least the minimum each month to avoid further damaging your credit profile.
For further details on how to improve your credit score, click here.
Have your say: If you've had problems getting credit or were offered a much higher rate of interest than you applied for, visit our community forum and let us know.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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