Personal finance expert said people have been coming up to him in the street saying ‘they’ve turned me down’
Martin Lewis has issued a warning to people wanting to get Lloyds, Halifax, Bank of Scotland, NatWest, HSBC Santander, and Nationwide credit cards – and anyone getting a loan – and explained why they are being turned down. In a new video on Instagram the personal dfinance expert said people stop him in the street wondering why they’ve been refused a loan or card.
And he explained that even if people have a good credit car there is a ‘hidden’ reason for the rejection. He said: “There’s a hidden but obvious reason many people are rejected when they apply for a loan and credit card. I can’t tell you the number of times someone stopped me to say, “I’ve just applied for a £5,000 loan. I’ve got a near perfect credit score, but they’ve turned me down. What’s going on?” And that’s because credit scoring is only half the picture.
“First thing to remember, you don’t actually have a credit score. When you get your credit score, that’s just one credit reference agency’s view of how a typical lender would see you. In reality, every lender scores you differently. But more importantly, the credit score is missing a crucial piece of information, how much you earn.”
The key point is the assessment of whether a person is actually able, in the lender’s eyes, to pay it back. He said: “And the other side to assessing whether they’ll accept you or not is doing an affordability score. Could you actually afford to repay? So, if you think about a loan, a lender might accept you if you apply for a £2,000 loan, but the same lender might reject you if you apply for an £8,000 loan, thinking you can’t afford to repay it.
“With a credit card, credit scoring is bit more important. But what the uh affordability test does is dictate what the credit limit you’ll get is. So even if you got a perfect credit score, it is very possible that you can be rejected if your income isn’t good enough to fulfil the affordability score.”
Last week he told people that even if they haven’t got a credit card – they need to be wary of debit debt – and said they are ‘more dangerous’. The personal finance expert explained that people often use debit ahead of credit cards because of the interest rates.
Mr Lewis, who regularly appears on ITV and the BBC, said this could be a mistake – and people can be hit in the pocket badly. He said: “Is your debit card really a secret debt card? Many people say credit cards bad, debit cards good, but actually typical high street interest rate of a credit card is 25%.
“Typical high street interest rate of an overdraft 40%. So of the two, it’s your debit card spending if you’re overdrawn that is more dangerous than a credit card, though neither of course are good. Now we have to take that honest step with the logic. Many people who have both debts will actually use money in their bank account to try and pay off the credit card. But think about that.“
He said that the problem arises because people don’t realise the difference in interest rates – and end up paying more: “What that actually means is you’re increasing the amount of more expensive debt in the overdraft to reduce the cheaper debt. You would be far better off just to make the minimum monthly repayments on the credit card and focus on clearing the overdraft.
“In fact, if you have more than one debt, the sensible move is always to list them in order of interest rate and then you take the highest interest rate. debt, which will probably be your overdraft, and you focus all your spare cash on trying to clear that while just paying the minimums on everything else.
“Once you’ve cleared that, you focus on the second most high expensive debt, and you try and clear that and so on and so on. It’s called snowballing. And hopefully, it’ll get you debt-free a bit more quickly.”
