Credit card customers allowed £17bn without a credit check

18 June 2008 / by Rachael Stiles
Credit card providers could be putting themselves and their customers in a vulnerable position by not carrying out sufficient credit checks on each application, new research from uSwitch.com has found.

UK debt has hit £1.4trillion, and in 2007 £17.3billion of debt was written off when customers could not afford to repay their borrowings. But, according to uSwitch, 4.8million successful credit card applicants were not required to provide validation of the information on the application form, such as proof of income.

This 84 per cent of all credit card applications gained each customer an average credit limit of £3,545 – 20 per cent of the average salary and a total of more than £17billion – without having to provide a single piece of verification which could indicate their suitability for that level of credit.

Of people who were given a credit card, 14 per cent said that they were not asked about their salary or outgoings at all, but gained a total credit limit of almost £2.9billion. Just eight per cent were asked for proof of income or outgoings.

Five per cent of applicants lied about their salary, adding an average of 70 per cent more to their income and using this information to secure more than £693million of credit.

Of those surveyed, 77 per cent said that they did not get their credit card from their bank, meaning that the credit card provider they used did not have any information about their previous credit history without running a credit check.

As an indication that allowing a customer to obtain a credit card without first checking their credit worthiness, five per cent of successful applicants had to incur additional debt in order to keep up with their card payments.

"We cannot ignore the fact that the credit crunch has forced lenders to tighten their belts and reject applications that may lead to further write-offs," said Simeon Linstead, head of personal finance at uSwitch.com.

But, he continued: "The fact remains that just because a consumer appears to have a ‘suitable' credit score, it doesn't mean they are always honest about their income and actually have the cash available each month to pay the bill. The credit squeeze will back some consumers into a corner and, in sheer desperation, people will resort to lying about their salaries as this is such an easy loophole to exploit."

A new Banking Code, which came into effect in March, has made it mandatory for credit card providers to carry out at least one check, either of the applicant's income or financial commitments.

"We cannot ignore the fact that consumers have a responsibility to borrow sensibly, but lenders need to help the process and tighten their credit checking procedures," Mr Linstead added. "It is too early to say if the amendments to the Banking Code are resolving these problems but there is clearly an urgent need for watertight measures to be put in place to ensure that the banks are lending responsibly."

uSwitch also recommends that consumers compare credit cards, and reminds companies that it is imperative to get an accurate depiction of an applicant's creditworthiness by obtaining a credit report.

© Fair Investment Company Ltd