Matthew Wall, Friday May 02, 2008

Credit card issuers are reportedly refusing around 18,000 applications a day due to the 'crunch', so how can you make sure that your application is successful and ensure your credit record is healthy? Here are 10 steps that can help:

1) Don't make scattergun applications. When you apply for a credit card most lenders will carry out a credit check on you to see if you have a good debt repayment history. The two main credit reference agencies lenders use are Experian and Equifax.

These companies make a note on your record each time you make an application, whether or not you are successful. So lots of applications give the impression that you are desperate for credit, possibly in financial difficulties, and therefore high risk.

2) Never lie. If you're worried about being refused credit it can be tempting to massage the truth a little on your application - the true extent of your other debts, for example. Don't do this. It will land you in trouble and possibly scupper your chances of ever getting a card in future.

3) Cancel cards you don't need. If you have several other credit cards it is a good idea to cancel them even if you don't use them and you don't have any debit balances on them. The reason for this is that the lender will treat these cards as 'live' and assume you have access to the funds up to the credit limit on each card.

Your other dormant cards could be pushing you close to your own personal credit limit.

Find a better credit card - fast

4) Show some loyalty. Although standard consumer advice is 'shop around', it can be a good idea to stick with the bank or building society you already have a relationship with. Their lending criteria will often be more relaxed for existing customers than for new customers.

You might not necessarily get the best deal this way but at least it reduces the risk of you being refused and this rejection appearing on your credit record, possibly scuppering future applications.

5) Be prepared to wait. If you've had trouble paying what you owe or you exceeded your credit limit a few times you're likely to have an 'impaired credit' score. If so, there's little point applying for the market-leading deals - you'll only make things worse.

But there are still lenders who'll take you on. Just expect to be charged interest rates at roughly twice the average - 27% to 40% APR, say - and be offered much lower credit limits than people with good credit scores. Many of the financial comparison sites let you search for the best 'impaired credit' deals. Once you've shown that you can run your account sensibly your credit score should improve over time.

6) Go for credit you don't need. It may seem bizarre but if you've never borrowed any money in the past it can actually make applying for credit more difficult.

Your lack of credit history makes it harder for lenders to assess your ability to repay what you owe. So consider taking out a loan or a store card, even if you intend to pay off what you owe each month, and this should help with future credit card applications.

7) Stick to your credit limit. Although having a high credit limit on your card can make you feel like a high roller, regularly 'maxing out' your card will set alarm bells ringing as it increases the risk of you defaulting on the debt. Generally speaking, try to keep monthly borrowing to within 30% of your credit limit.

8) Check your credit history. If you find that applications are being refused it might be worth checking your credit report for mistakes. This costs £11.95 with Equifax and £5.95 with Experian (after a 30-day free trial).

Find a better credit card - fast

9) Always pay your debts on time. Every late payment not only costs more interest, as well as other penalties. It also means other credit providers are lore likely to look askance at any applications from you.

By setting up a standing order or a direct debit, perhaps for a minimum amount, you reduce the chance of this happening.

10) Don't despair. Nowadays, being turned down has nothing to do with a person's overall credit worthiness. It owes more to the way many credit providers are choosing to look at applications.

So if you are prepared to be patient, wait for another two or three months and try again, possibly after having followed some or all of the tips above. You will then stand a better chance of getting the credit card you want.