Credit cards are increasingly in demand as the coronavirus pandemic develops across the world. Since the start of March, UK Googlers have been searching for ‘credit’ at rapid rate and it’s no surprise why. Workers across the country are finding their employment and income uncertain amid the financial challenges posed by Covid-19. Many will inevitably lean on credit and financing for a little more purchasing power during this period of uncertainty.

But what happens when there’s massive demand for credit during a time of unreliable income? Are lenders jumping at the chance to haul in hundreds of new customers or is the risk of defaulting debtors growing dangerously high?

Stricter lending in the face of Covid-19

At time of writing, no credit card issuers have announced measures to cease approving credit cards for new customers, despite the financial pressure of coronavirus on workers and businesses. However, credit card providers tend not to announce changes to their acceptance criteria, so it’s certainly plausible that some will be tightening up their requirements.

Just this week, Halifax said that, due in part to being flooded with worried customers asking for payment holidays, it no longer has sufficient processing power to keep up with demand. As such, it’s stopping all new mortgages with loan to value of more than 60% (meaning you’ll need a 40% deposit if you’re planning on taking a mortgage from Halifax). Barclays has announced a similar restriction on its own lending criteria. This sets a precedent for coronavirus making mortgages harder to get, so lenders could easily and quietly apply the same thinking to credit cards.

All of that was swiftly followed by a call from the government for all but the most essential house purchases to be put ‘on hold’ until the crisis passes.

It’s fairly standard practice for lenders to regularly change their criteria in response to their own business needs, although the largest shifts come when there’s increased risk of customers defaulting, such as sudden and widespread unemployment. Raising the acceptance threshold, as borrowers’ incomes are found to be less reliable, would be understandable for lenders trying to protect their bottom line. If workers are worried about the reliability of their income, lenders will also share those concerns.

As immediate access to cash decreases, the lure of a credit card grows ever stronger. On the surface, it seems to make sense: borrow to help you through a difficult period and repay when things are looking up. But where there’s no guarantee, there’s risk – and lenders don’t like risk. They like reliable customers who consistently pay a nice chunk of interest on time each month. Because of this, most lenders tend to avoid ‘risky’ customers, instead prioritising prospective customers that seem the most financially reliable.

While the majority will be taking steps to genuinely help their existing customers through this difficult time, it isn’t hard to imagine some taking steps to tighten up their acceptance criteria for potential new borrowers.

What do credit card providers look for in a customer?

Above all else, lenders value customers that are demonstrably reliable at keeping up with scheduled monthly payments. The financial impact of coronavirus on otherwise reliable workers, mainly due to uncertain income and employment, is an additional risk that lenders now need to account for.

If there’s any doubt about your ability to maintain consistent repayments (such as problems with reliable income) then you may experience difficulty being accepted for a credit card. This is because lenders should be lending responsibly to protect both their own interests and the customer from defaulting on payments. They do this in two main ways: by assessing your creditworthiness and affordability before granting you a credit card. While these two key factors are closely linked, they are distinct from one another – and failing your assessment for either one will likely lower your approval chances, especially if lending criteria (as suspected) has been strengthened.

Your creditworthiness is a measure of how well you have managed your credit agreements. The number of accounts you hold, length of your credit history, and how you’ve maintained your monthly payments are just some of the factors that influence how creditworthy you seem to lenders. To boil creditworthiness down to its basics, you’ll want an extensive credit history with a consistent habit of paying many different types of credit agreements on time each month to really stand out from the crowd. On the flip side, negative markers on your Credit Report, such as late payments, defaults, and CCJs are seriously detrimental at the best of times, so the added concerns around coronavirus may mean they hurt your creditworthiness even more than usual.

The best way to understand your creditworthiness is to check out your Credit Report for yourself, where you’ll be able to see the exact information that matters.

Affordability is a measure of your financial ability to keep up with the scheduled payments involved with a new credit product, such as a credit card. If your current outgoings are critically close to your income, your affordability will be called into question and lenders may worry that extending further finance could tip you over the edge into missing payments and defaulting. If workers are facing reduced income due to the coronavirus, their affordability will take a hit unless outgoings are reduced accordingly.

As an aside, lowering outgoings is easier said than done a lot of the time, as mortgages, rent, and utility bills are often inescapable. Temporary measures are being offered by mainstream mortgage lenders to support customers through the pandemic. Three-month payment holidays are the most publicised, but most lenders are working with customers to tailor solutions appropriate to their individual needs.

There is no way to know for certain whether a lender has changed its criteria behind the scenes, as they tend to keep these innerworkings close to their chest, but it wouldn’t be surprising if credit card issuers are growing increasingly picky.

One thing we do know for certain is that most credit applications, especially for credit cards, are processed automatically rather than by manual assessment. That means you can still apply and be approved for a new credit card online – providing you meet the creditworthiness and affordability requirements.

Automated Credit Scoring

Nowadays, thanks to the internet and sophisticated credit scoring methods, lenders can comfortably find and approve new customers digitally. This means that, despite the colossal pressure on lenders right now, you can still apply for credit cards online. While acceptance criteria may be tightened, the pandemic is unlikely to totally prevent lenders from physically opening new accounts for customers and distributing credit cards to anyone who meets the criteria. That said, lenders are facing difficulty dealing with existing customers seeking payment holidays and other financial relief, so manually reviewed applications may take longer than usual.

A benefit of having strong creditworthiness and affordability is that you are more likely to go through a fully automated application, saving everyone time.

The automated credit scoring you’ll be subject to will focus on the two main points we’ve already highlighted: creditworthiness and affordability. In general, your creditworthiness is determined automatically by applying a scorecard to the data found your Credit Report to calculate a Credit Score – the higher, the better.

If you’re planning on applying for a credit card, you can see the information that lenders will look at by checking your Credit Report. This too can be done easily online. You can ensure it accurately reflects your financial standing before submitting an application. While errors are rare, they can crop up now and then, so checking over your Credit Report first can give you some peace of mind.

Your affordability is calculated based on information you submit on the application, such as income, outgoings, and employment status – none of which are included on your Credit Report. While your creditworthiness represents how likely you are to pay, your affordability is a measure of whether you can afford to.

Does the record low interest rate make credit cards cheaper?

The Bank of England has cut the base interest rate to 0.1% — the lowest it’s ever been — in an attempt to protect the economy from the uncertainty of the global pandemic. The base rate does affect how much you’ll pay for credit card borrowing, but its influence is minimal when compared to larger finance like mortgages, so don’t expect to reap exceptionally cheap credit cards because of this.

Credit cards are still a relatively expensive form of borrowing and even the tiny base rate doesn’t change this fact.

How do I check my Credit Report?

Checking your Credit Report is easily done online. It’s worth noting that there are four UK Credit Reference Agencies (CRAs): Equifax, Experian, TransUnion, and Crediva – so you actually have four separate Credit Reports. Credit card lenders will check one or more CRAs to assess your Credit Report, so the only way to ensure you’ve seen what a lender will see is to check them all.

checkmyfile makes the process quick and easy. Your Multi Agency Credit Report will collate your complete information from each Credit Reference Agency for you and compile it into the same, easy-to-use platform. You can then easily see and compare the data from each CRA.

You can try checkmyfile free for 30 days, then just £14.99. You can cancel easily online at any time.