How Credit Card Companies Decide
- Vetting your application
- Your credit record
- Assessing your ability to pay
- Setting and increasing your credit limit
Vetting Your Application
Rigorous checks will be made on your application. How this is done depends on the credit card company but it may involve both automated and manual checks. These include:
- checking your address for outstanding fraud
- validating your address by comparing it to the electoral roll
- checking your name for any County Court Judgements (CCJs) etc.
- checking your name for outstanding fraud.
Your Credit Record
Credit card companies share historic data about customers, as allowed by law, with the credit reference agencies. So you need to be completely truthful on applications.
Credit reference agencies hold credit files that contain a mix of public and private information on individuals. Upon receiving your application a lender will check your credit record for information to confirm that you are both willing and able to pay your existing debts. They will then assess whether you can handle the additional credit that you have requested.
Assessing Your Ability to Pay
Credit card companies will use the details on your application form and information held by the credit reference agencies. They will look at many things in your personal details, including:
- how frequently you have applied for additional credit
- how much you are already borrowing
- whether you pay your debts on time
- whether there is evidence of you not paying what you owe
- whether you can afford the extra credit.
The result of this assessment – the credit score – will be used to make a final decision on whether or not to approve your application and, if it is accepted, to set an appropriate interest rate and credit limit. The rate that you are offered may be different to the typical rate that is quoted in advertising and literature, but by using this type of pricing the credit card company can accept more people for more cards.
For more information on credit records and credit scoring visit the British Bankers’ Association web site at www.bba.org.uk
Setting and Increasing Your Credit Limit
When you take out a new credit card the card company will set a credit limit. The credit limit that is set will be based on their assessment of your credit-worthiness. The credit limit is the maximum amount that you can spend and owe on your credit card. This includes all your purchases, cash advances, balance transfers, fees and charges. If you go over this limit you may have to pay a charge for exceeding your credit limit.
Once you have shown you can manage your new account responsibly your card company may increase your credit limit.
If you are given a credit limit increase you do not want you can ask your card company to remove it. You can also request that no credit limit increases are ever applied to your account.
