Poor Debt to Limit Ratio - Should I Wait to Apply for Balance Trasnfer?

Endox

I recently applied for Tesco card and was rejected. I'm appealing the decision but not holding out, as far as I can tell the main reason for rejection is likely to be a high debt to limit ratio, i.e. I'm typically using close to all my available credit.

I appreciate the general advice is to ensure at least 50% available credit before applying, however in my situation this would erode my benefits significantly as I only intend to use the card while paying off debt fairly rapidly over the next 12 months or so. I have ~£2000 owed on high interest cards, and am paying around £50 per month interest for this, plus another £30 on lower rate overdraft and Barclaycard. My credit history is generally good and I've recently had a payrise which means I can soon pay £300 - £500 per month off the high rate cards - therefore I can clear the balance in around 4-7 months regardless, but want to avoid interest in the meantime if possible. If I wait until I've paid off half the total credit balance to consider applying, I'll already have paid off the high interest cards fully, and then likely have to wait another month for this to show on the credit report, then another 1-2 months for the credit card to be accepted, arrive and the balance transfer to go through, by which time I'll have just about cleared the balance anyway!

So this puts me in an odd situation - do I risk more applications to transfer the balance now and take the hit to credit report for 6 months, or do I just accept the interest and keep my report clean then reapply in 6 months which could help to avoid interest while clearing the lower but not-insignificant balance on bank overdraft and Barclaycard? Obviously any interest immediately saved will enable me to clear the balance quicker too.

Basic credit details are:

Cap one, Aqua, Vanquis: £2000 total, using approx all
Barclaycard: £500, using approx all
Barclays Overdraft: £3000, using most

Application history: 6-12 months ago: 2
3-6 months ago: 1
1-3 months ago: 3 (Old Halifax app failed as I wasn't yet on electoral role)

Adverse history: 2 late payments but both over 18 months ago. No missed payments, CCJs etc.

Electoral role: Yes at current address

Income / credit: £37k / £5.5k

Address & Job stability: Moved frequently though am on role; FT employed >1yr

ironlady2022

You have quite a high number of credit cards? This could be a factor? What are the total limits on them? Maybe reducing limits on them could make way for a new application. I would go for a medium 0% balance transfer card though eg 6-9 months.

Endox

Agreed, I expect it is largely due to the high proportion of credit I'm using. I doubt it's the amount of credit itself as it's not a huge proportion of my income.

I guess what I'm really wondering is how inflexible are the underwriters with respect to the avilable credit ratio - if there's a small but reasonable chance I'll be accepted then I'm happy to do several apps and risk further rejection and 6 months of poor credit rating, because the bulk of my savings in interest would be in the short-term anyway which I'll miss out on by waiting. If however there's virtually no way I'll get accepted like this even after appealing and showing increase in income to support that I'll be paying it off, then I'd rather save my credit rating for later.

So you can see why I'd consider the high risk, these are the total interest payments I've calculated if I pay off interest plus a consistent £300 per month, highest debt first, until all £5.5k is cleared:

- No balance transfer: £781
- 0% balance transfer TODAY on £2500 card balance, pay off overdraft and then cards: £179 + £75 transfer fee = £258
- 0% balance transfer of £3000 from overdraft (via money transfer) IN ~9 MONTHS when cards have been already paid off and debt ratio is ~50%: £597 + £90 transfer fee = £687

ironlady2022

You need to state the limits on your existing cards not the amount owed, this can be a major contributing factor.
I'm afriad I don't think there is any point in applying for further cards unless you first lower the limits on your existing cards.

NouveauRiche

Have you tried asking Barclaycard if they will up your limit so that you can transfer one of your other cards? I am an existing customer and I was recently offered 6% or 6.5%, (can't remember which!) for a life of balance for any transfers. (My card has nothing owing at the moment, though.) It doesn't hurt to ask - they can only say NO.

Endox

Thanks for replies, the individual limits are:

Cap one: £1000
Vanquis: £500
Aqua: £500
Barclaycard: £500
Barclays Overdraft: £3000

(Total: £5500)

I'd tend to agree there's no point applying when right near the limit, but was hoping that maybe some underwriters might be more flexible when the credit report is otherwise good and I can show that I've got the capacity to pay it off.

I've asked Barclaycard and they're unwilling to provide any advice - esentially leaving it up to the computer. They do say though that no existing offers are available so I'd expect that means the prescoring system has already ruled me out?

ironlady2022

If you had the capacity to pay it off, you'd have paid it off by now.

Endox

mayling03 wrote: »

If you had the capacity to pay it off, you'd have paid it off by now.

That's precisely what the computer system would conclude. I have the capacity to begin paying it off as of my next paycheque since I've recently had a payrise, and now have a fair amount of disposable income which I haven't until recently. I'd hope that an underwriter would be able to see this if I provide documents showing change in income - or at least that I'd be a profitable customer if not since I've never missed payments - but it seems the risk averse approach combined with efficiency drives have led to any cases out of the ordinary being dismissed out of hand.

ironlady2022

They would need to see at least 3 months statements so they can see the individual 'getting use' to their increase in income.