Personal Credit Application saw Limited Company Credit File checked.

Hi.

I work as a freelance project manager offering my services through a limited company, paying myself salary and dividends leaving very little (single digits usually) in the company coffers.

I recently opened a 123 credit card account with Santander. During the application process I stated that I was self-employed through my own limited company and gave the name of my limited company.

I received the credit card and tried to use it. My first transaction was declined. Initially I was told the decline occurred because the card needed to be present (I was attempting to make payment over the phone). I arranged to visit the shop to make the payment with the card present but the card was declined again. I called Santander and after speaking with someone in customer service team I was transferred to someone in the ‘investigations team’. I was informed rather sternly that my account had been closed and my application rejected. I explained I had been in possession of my card for over a week and that my application had been accepted - I’d even logged in to the online account to activate my card and the account was definitely open. I was told sternly that I had been subject to extra checks and my account had been closed. I asked if there was any plan to notify me and I was informed that a letter had been posted out. I asked why my account had been closed and I was told that there is no legal obligation to disclose the reason why my account was closed and my card cancelled but if I was to check my ‘credit file’ it would be ‘obvious’. I asked what was meant by a credit file and was told sharply - “like Experian”.

I have never been refused a line of credit and I have never had any need to know about my credit file so this was not something I had any real grasp of but I have heard of Experian so I set up a personal account with them to gain access to my credit report.

After waiting a few days for Experian to check my identity I was given access to my credit score. It was 880 out of 999. The only negative factor was the fact I had just opened a new line of credit with Santander (I understand opening a new line of credit can knock approx 10% of your credit score).

I called Santander to explain that I had gained access to my personal credit score with Experian and that the report had showed that the only damage to my credit score had been inflicted by Santander when issuing a new line of credit for the 123 Credit Card account I had just been issued with.

On this occasion, I was told that the reason my account was closed was because the limited company I had stated I was self-employed by on my application form was ‘in a negative trading position’ and that rather than looking at my personal credit report I should look instead at my business credit report.

I went back to Experian and set up a business credit report account for my limited company. I saw the limited company was rated 15/15 which was ‘maximum risk’. The negative factors affecting my credit score were listed as being a factor of or directly attributed to my company account showing a drop in shareholder funds and asset from +£125 in the first full company financial year to -£1 in the second full company financial year.

These numbers are purely academic. All shareholder funds are paid out to me as salary and dividends at intermittent points during the company financial year, usually as and when outstanding invoice payments are cleared into my company bank account. I run my business on a Personal Service Company (PSC) model. I have no tangible or intangible assets and I have no staff other than me. Knowing the nature of my own business and the significant lack of collateral it could offer again any type of credit or loan I would never apply for credit or loans against the business. It would be bad practice and very likely to be an unfruitful exercise. That is why I applied for the credit card, ‘personally’, as an individual with a strong income and a strong credit rating.

Had I applied for the credit card as self-employed with a ‘Sole Trader’ business then it may have made sense to whether my business was in a ‘negative financial situation’ as if the business was in financial trouble then I personally could be in financial trouble as my business and I would have been financially linked.

My income comes from several sources; I have a salary, dividends and I own a rental property in London. I hadn’t specified anywhere on the credit card application how much I relied on each source but for some reason Santander had felt it pertinent to credit check my limited company through an Experian Business Credit Report to ascertain my credit worthiness. As my Business is a personal service company with no shareholder funds left in it for any period of time (dividends are paid at the same time as salary) and without any tangible assets it doesn’t have a strong credit rating - it’s just not geared that way.

Are Santander acting within their legal rights by credit checking my limited company when making a personal application for a credit card?

If so, what benefit would Santander aim to derive from determining the financial position of a separate legal entity (my limited company) that had no legal obligation to meet my personal financial obligations (if I defaulted on paying back my credit, my limited company would have absolutely no obligation to pay my debts on my behalf whatsoever nor would Santander have any right to pursue the debt with my limited company.

Is there any likelihood that what has occurred here, is that either Santander, it’s ‘Investigations Team’ or Experian Business have misinterpreted the credit checks they need to make and followed incorrect process resulting in this mess and unnecessary damage to my credit file?

Will the fact that Santander have now withdrawn their credit card account and closed my account, (effectively refusing me credit) now further damage my personal credit file?

Any help or advice appreciated!

UPDATE: I’ve just been called back and offered £100 as a good will gesture because although Santander are ‘happy they followed the correct procedures’ they have identified a staff training issue whereby on checking my Limited Company financial situation they should have contacted me to request further information rather than just closing my account and withdrawing their credit. Not sure what to do as still unsure how checking my limited company accounts has anything to do with a private credit card application.