The secret reason banks reject you for credit

Find out why you could be refused credit even if you have an excellent credit rating.

If you know you have black marks on your credit record, it probably won't come as a huge surprise if you get turned down for credit. In fairness, if you're having trouble managing your existing debts, you can't really blame a lender for turning down your request to borrow even more.

But if you know you have a good credit rating - or even an excellent one - and your application still gets refused, that becomes a bit of a mystery.

The trouble is, when you're rejected for credit, a lender will never tell you the why. But I'm going to reveal one reason why you're almost guaranteed to be turned away through no fault of your own.

Why have you been refused credit?

You might already know that being registered on the electoral roll is one of the things lenders will be looking for when they decide whether to lend to you or not. But why is being on the electoral roll so important?

It's an easy way for a lender to verify that you are who you say you are and the address you gave in your application is where you actually live. This is a necessary check for guarding against fraud.

If you're not on the electoral roll or your details are inaccurate, some lenders may be prepared to verify your name and address in a different way. This will almost certainly delay your application. But most lenders will automatically decline you because you're not on the electoral roll - even though this has nothing to do with your credit score or how well you manage credit.

So, remember, when your personal details change (such as when you move to a new home) make sure you fill out a new electoral registration form to update your details. Otherwise the next time you apply for credit you'll probably be unsuccessful again.

Why have you still been refused credit?

Unfortunately, even if you fill in the electoral registration form, that isn't necessarily the end of your problems - as I recently discovered myself.

Like many of you, I took advantage of the Virgin Credit Card 0% balance transfer deal. The 16 month interest-free period ran out last month, and unfortunately, I still have a balance on the card. So I decided to apply for a new 0% card, this time from Santander.

By coincidence, I also moved house in August. But I'd immediately filled in the electoral registration form, to ensure I would qualify for a new card.

But disaster - Santander refused my application.

Now I know I have a pretty good credit history, so I thought there must be a problem with my electoral registration form. You can easily check if you're properly registered by contacting your local registration office. All you need to do is go to aboutmyvote.co.uk.

So that's what I did. And sure enough, I'm still registered at my old address, despite filling in a new electoral registration form more than two months ago. As you can imagine, I'm  less than impressed with the long delay which I'm convinced caused Santander to turn me down.

So I decided to find out why it was taking so long to register me at my new address. And what I discovered was pretty shocking!

The credit trap

Between mid-August and November every year, the annual canvass takes place where new registration forms are delivered to every home in Britain so the electoral roll can be updated en masse. 

At any other time of the year, the register will be amended on an ongoing basis.

This means that, while the annual canvass is taking place, the electoral roll won't be updated at all. Instead, any changes sent to local registration offices during this period are stockpiled until December 1 when they will all be applied in one go.

In other words, from mid-August to November - a period that lasts more than 15 weeks - if you move house and then apply for credit, you'll almost certainly be rejected because the new address you give on your application won't match with your old address which is still on the electoral roll.  

The upshot for me is that my credit card debt is stuck at Virgin where the typical interest rate of 16.6% APR has now kicked in. I can't move it to a new 0% balance transfer deal until after December 1 when my new address will finally be added to the electoral roll. In the meantime, it'll cost me a small fortune in interest.

If you ask me, this situation is crazy. The Electoral Commission told me that current legislation dictates that no changes can ever be made to the electoral roll during the annual canvass. I suspect many people who move during this period will need credit at exactly the time they won't be able to get it. It's a ridiculous system, and one which I think unfairly disadvantages borrowers.   

Is there anything you can about it?

If you're going to move home between mid-August and November, and you know you'll need to apply for some form of credit during this time, I suggest you apply before you leave your old address. That way you can be sure the address you give the lender and the address on the electoral roll match up.

But is there anything you can do if it's already too late?

If you've had problems like mine, ask your local registration office to send a letter which confirms your new address and explains it will be updated on the electoral roll after the annual canvass. You can forward this letter to the credit reference agencies - the three major agencies are Experian, Equifax and Call Credit - and ask for a note to be added to your credit report which can be brought to the attention of prospective lenders.

Having said that, it's difficult to know how much influence this might have on a lender which routinely reject applicants who aren't properly registered. But I still think it's worth a shot. It definitely won't harm your application, but it may just help.

And finally, don't forget to check your credit report after December 1 so you can be sure your new address has at last been added. You can get a free credit report from Experian.

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