Every day, more than 20,000 people are being turned down for personal loans as banks adjust to the crisis in world financial markets. Experts are warning consumers to take extra care to keep their credit rating up to scratch in a new atmosphere in which even an unpaid £5 mobile phone bill can become grounds for turning down a loan application.
A survey by the financial comparison site MoneyExpert.com revealed that 1.91 million people had had applications for loans turned down in the three months to September, a sharp rise on the previous quarterly figure of 1.39 million. One leading credit-card company has said that it now turns away more than half of its potential new customers for fear of taking on bad debt.
The new figures suggest that the outlook for people applying for unsecured loans is even worse than was forecast last week by the Bank of England in its quarterly credit conditions survey.
The Bank warned that "changes in the economic outlook and a reduced appetite for risk had contributed to lower overall credit availability", and that the market was expected to get tighter still in the run-up to Christmas.
The credit squeeze was under way before problems such as the dramatic rise in mortgage defaulters in the US and the queues outside Northern Rock offices brought home to the average consumer that there is trouble in the money markets.
"The banks were seeing this happening for a while and making adjustments before we started hearing about the 'credit crunch'," said Tim Moss, of the financial comparison website MoneySupermarket.com.
"We've been seeing an uplift of about 10 per cent of people coming through our site saying that they have been declined personal loans in the past three months.
"People are going to have to make sure that their credit records are accurate. We are seeing people who have been issued with a default notice for a £5 mobile phone bill, and this has affected their credit rating.
"In the past, the underwriters looked at the value of a debt and thought, 'This one is small enough that we can ignore it'. Now they are looking for reasons to refuse people, so that they are left with safer and safer customers."
A spokesman for Barclaycard said that in the past few months it had been rejecting about 55 per cent of all applications for credit cards, up from 50 per cent in 2006-07. The spokesman said: "Changes in market conditions – higher interest rates, council tax increases, that sort of thing – mean that we have to be slightly more cautious. There is increasing pressure on domestic budgets. People may not be able to pay us back, so we have to be a bit more careful who we lend to."
Sean Gardner of MoneyExpert.com said: "It is becoming much more difficult to borrow money as lenders get tough on granting applications. They've been stung by bad debts, with borrowers unable to repay the cash, and are tightening their lending criteria.
"A combination of the credit crunch and the Bank of England putting up interest rates has hit borrowers' ability to repay, and lenders are reacting. It is not just a matter of rates on loans going up. Lenders are being much more cautious about who they will lend to."