Reduce the risk of being refused credit

With providers becoming increasingly choosy about who they'll lend to, check out these tips to help minimise the chances of being refused a card.

Credit cards have certainly become an important tool for sensible users over the years. While some of us use them for short term credit, others choose a cashback card to make a little on our spending.

Credit cards can be useful tools

And an increasing number of us have 0% cards for balance transfers. These can currently give us up to 16 months during which to pay back our balance while incurring no interest (subject to a balance transfer fee). This can be an invaluable tool for those trying to get out of debt. Some take this even further, with so-called rate tarts moving their debt from card to card, once their 0% periods expire to avoid paying any interest on their debt.

Unfortunately (or you may say, fortunately) the credit crunch has taken its toll. Not only has it led to a decline in the number of credit cards being issued, lenders can now pick and choose who they offer them to. So moving card is no longer that easy.

Too many black marks?

Now, you may not think this affects you - and besides it's no big deal if you're turned down for the odd credit card, is it?

But it's not that straightforward.

If you apply for a credit card and you're refused, this leaves a "search footprint" - basically a mark, on your credit file. Numerous black marks, particularly over a short space of time doesn't look good to potential lenders, and could leave you with serious problems when you come to apply for credit for something more important, like a mortgage.

So what can you do to minimise the chances of being refused credit?

There are no hard and fast rules as all lenders use different criteria in making their decisions. There are also three main credit reference agencies that each work in different ways (and you won't know which one your lender uses).

That said there are a few general points about credit cards you should know before you apply:

Things you need to know

• Many different 'brands' of credit cards are actually issued by the same lender.
• It's better not to apply for a card issued by your existing card's provider (lenders generally don't like to issue too much credit to one individual).
• Credit card issuers won't allow balance transfers between two of their own cards.
• Too many dormant credit cards (with a large combined credit limit) mean you have the potential to go on a huge spending spree. It's best to cancel any you don't use.
• Too many applications for credit in a relatively short space of time can count against you.
• Missing a payment can result in a black mark on your credit file.
• Equally, some lenders give black marks to people who always clear their balance (as they can't make any money from them).
• If you are not on the electoral roll, getting credit could be difficult.
• Numerous black marks can make lenders believe you're a serial debtor.

The reasons you could be declined credit are complicated (you could get refused if you fail to make a payment, but then you could also get refused if you always clear your card!). However, it is best to avoid applying for a credit card from your existing card's lender.

So which lenders run which cards? You can find out by searching their individual websites. But to save you some time, I gave our friends at Moneyfacts a call who have supplied me with the following table of credit cards, and the lenders that issue them.

Credit cards and the lenders behind them

Source: Moneyfacts

As you can see, US giant MBNA issues a number of popular cards including Alliance & Leicester (A&L), and Virgin Money. Additionally, it's also behind many of the football club credit cards.

In addition to the HSBC card, the bank also issues the First Direct and John Lewis cards. So if you wanted to take out the First Direct card for a balance transfer, therefore, you wouldn't be able to do so from an HSBC, M&S Money or HFC bank issued credit card.

If you have a charity credit card, such as Help the Aged, Oxfam, Save the Children or Greenpeace, it's likely to be issued by the Co-operative Bank.

Halifax/Bank of Scotland (HBOS) also issues the Sainsbury's bank card, Cancer Research UK and Amazon credit cards.

GE Capital Bank also issues the Debenhams and Mothercare cards.

And if you've a Caravan Club or CSMA card, they'll have been issued by Liverpool Victoria.

Know who you're dealing with

So the next time you need to apply for a new credit card, keep in mind who has issued the one you've got. Don't have too many cards, don't apply for credit too often and you'll minimise the footprints on your credit file.

And on a final note, a good habit to get into is to make a point of applying for a copy of your credit report from Experian or Equifax every 6 months or so (it costs as little as £2) in order to check that everything in your file is accurate.

Search for a better credit card at lovemoney.com

More: Rate tarting is back! | Why your 3% balance transfer fee costs 11%!