Why can't Ann get a credit card? A sample of one.

Ann's not her real name, but she's a real person, and she can't get a credit card. Is this normal, or part of the credit tightening reported on the Bank of Canada's latest Senior Loan Officer Survey? That's not a rhetorical question. I don't know the answer, and wondered if any reader did. Details below the fold.

Ann is 18, has been working full-time for about 6 months in a supermarket. She previously worked part-time for about a year at the same place. She probably gets a little above minimum wage.

Ann is taking one course in the evenings to complete her high school diploma. Her home address has stayed the same for many years. No trouble with the law, etc. (I don't know if this is relevant).

Ann has a chequing account (President's Choice, at Loblaws) with a couple of thousand dollars in it. Same chequing account for the last couple of years. Other than that she has no credit history.

She applied for a President's Choice credit card, and was turned down. She then applied for 5 more credit cards, and was turned down for all 5.

Is this normal? Or is this a symptom of the current credit crunch? Or did she make some sort of mistake when she applied (perhaps by applying for 5 cards at the same time)?

This seems to me to be a problem. Even if Ann made some sort of mistake in her application, she is above average intelligence, and if she made this mistake, many others of her age may make the same mistake. How do ordinary people in ordinary jobs get their first credit card? Do they always need a parent to co-sign? What happens if their parent won't, or can't?

Just wondering.

Comments

[Fernando Margueirat]

It is much worse for newcomers. I came to Canada in 2001 with a BSc in Computer Science 10+ experience in my profession (probably not relevant credit wise) and had 10K+ in a chequing account in a Canadian bank. Only after 6 month of earning more than double minimum wage I was able to get a CIBC Visa with $500 credit limit. Before that my only option was to get a secured credit card in which I had to have a 2 yrs GIC deposit in that bank (I'm almost sure it was TD just after they merged with Canada Trust) for twice the amount of the credit limit I was asking for.

[seaandthemountains]

Was one of the companies MBNA. When I looked into getting one the first, at a little older than Anne's age, I needed a parent to co-sign if I wanted to get it from a bank. Instead I filled out an MBNA application at a hockey game to get the free shirt and they actually sent the card. A short while after I was able to get a second card from a bank without the having anyone co-sign.

Ever since, based on this and some other experiences I have witnessed with MBNA, I pretty much assumed they accepted everyone.

[Nick Rowe]

Fernando: yes, I was wondering about newcomers to Canada. A couple I know emigrated to Canada from Cuba. Both had MA's (Economics, from Carleton, which we taught in Havana for a few years). They had great difficulty renting their first apartment in Toronto, because, again, no previous history for landlords to check against. I don't know how they managed with credit cards, but getting a first rental apartment seems to pose the same sorts of problems. And this is an immigrant country.

The strange thing is, I came to Canada in 1977, to do an MA, (which dates me) and I don't remember any difficulty getting a credit card. Maybe because I already had one, from the old country?

Here's a theory: if you are registered as a university student, it's easy to get a first credit card; if not, it's hard. Does that work?

Seaandthemountains: I don't know if one was MBNA. I will ask her, and suggest it if it wasn't.

[Alan]

As usual when the pendulum swings, it always goes from one extreme to the other. Before banks showed their incompetence by lending too much, now they are showing it again by not lending enough!

[Trevor]

It might depend on the Province of residence. The Age of Majority (the age at which an individual is able to sign contracts and be legally bound by them) is 19 in British Columbia, for example. She may be turned down because she is only 18! She should try to apply next year.

[Mark Dowling]

Nick, I immigrated from Ireland recently where I had credit cards with about 10K of credit limit to Canada where I couldn't get approved for 1K even well into a well paying full time position. I think one critical issue is that bank branches in my experience don't seem to want to deal with credit card customers, shooing them off toward call centres so it's difficult for newcomers to figure out what they need to do to get approved.

[Traciatim]

Anne should get a secured card from Capital one, then wait a year and apply again for the PC card.

[Leo Petr]

When I got my first credit card in 2000 or so, Scotiabank made me put $1000 into a GIC I couldn't cash as a deposit first, even though I had several thousand in my chequing with history of employment.

MBNA was much more issue-happy back then, though. Their card sat unused in my wallet for a long time.

Could her later credit card misfortune be due to having so many existing credit rejections in her credit file?

[Joseph Heath]

Canadian banks do not exact shower their customers with credit (even for those of us born here). I got the usual $500 limit credit card when I was an undergrad (from TD) -- kept it for 8 years or so until I finished my PhD, paid it off like clockwork. When I got my first job as a university professor, I called them up in May and asked for an increase in my credit limit, to help cover my moving expenses. They told me to screw off. I offered to give them a signed letter from my future employer (University of Toronto), with salary details, etc. They told me to call back after July 1, once I had started my job. So on July 2, I called back and cancelled my card.

A mere five years ago, my wife finished her surgical residency and began setting up her practice. She called up RBC, where we did all our banking, and asked for a personal line of credit. Even though she was an MD, with a commensurate income, and had previously received and paid off a substantial home mortgage with RBC, the same bank refused to give her a line of credit for more than $10,000, and ONLY if I (her husband) co-signed. I am not joking. It took a full week of back-and-forth before someone far enough up the food chain at RBC realized how insane (and, dare I say it, sexist) this was. So needless to say, we no longer do business with RBC.

As for the question you asked, I have no idea. I just wanted to tell these two stories.

[Vadim P.]

That's puzzling. Two months ago I got my credit card from BMO with a $1k max credit. Currently a student, not even employed (besides the small services work I do).

[GA]

She should get someone to check her credit rating / file. If she did not have one before, she does now. She would not necessarily have one if she just had a checking account before this (there is no credit involved).

And yes, applying for five all at once will have hurt her credit rating - temporarily at any rate.

[ookoo]

I've had the opposite 'problem'. I get dozens of credit card applications in the mail, telemarketers etc. With the telemarketers I ask, "Is it a problem if I'm an undischarged bankrupt?" The answer is always "No"!

I bank at RBC and applied recently for a LOC to bridge some costs for a car purchase. I needed about 20k, applied for 30k, received 80k! And I was recently preapproved for a mortgage of over 800k on a family income of 150k.

Now, I have a long credit history without problems, and have no debts. I got my first credit card in university, over (gasp) 20 years ago. The point about access to credit as a university student seems bang on. We all got student cards in university, $1000 limits, in addition to student loans and (for some of us) lines of credit, as well as department store cards. Paying your cc and your student loans at least gives you a credit history. Perhaps your borrower should obtain (and continually pay off) department store types of cards to create a credit history.

Not sure what my point is. I guess it's that lenders can't deal well with borrowers that are square pegs. But if you are the same shape as their round hole, then shoot the moon, baby!

[Andrew F]

Department store cards seem easy to get, too.

It took me a hell of a long time to get a CIBC Visa Classic, but a few months after that, I was granted a PC Financial card, which is what I use primarily.

[Dee]

She has no established credit history and she's applied for 5 cards at roughly the same time. The 5X would have flagged her credit report. She'll have to wait for a little while and then apply for a card where she maintains her bank account. If she shows a savings history, they may give her one with a min. limit. It also doesn't help that she lives at home. Paying rent establishes a credit history.

I don't think the banks are handing out credit cards like they once were but they have been bumping up limits with low total debt ratios.

Hope this helps.

[Nick Rowe]

Thanks for the comments. That now makes a sample of about a dozen, and on that basis I'm prepared to say that Ann's experience is probably not an indication of recent tightening of standards; more likely it was always like this. I will pass your helpful advice on to her.

I was initially a bit surprised that banks would be so reluctant to give out credit cards to people like Ann, even with a very low credit limit. After all, their downside risk would be small. But perhaps banks' upside benefits are equally small, I don't know.

There does seem to be some sort of problem here, in that it seems rather difficult for young people (and newcomers to Canada) to establish a credit rating. Perhaps it's some sort of "free-rider" problem. An individual bank which invests in taking a risk on Ann, by giving her her first credit card, produces information (is Ann a good credit-risk?). But the individual bank cannot capture the long-term benefits of that information, if that information is freely available to competing credit card companies. (Non-excludeable, non-rival good: standard "public good" problem.)

[phoem]

hi there!! i just want to share my experience as well.ive been here in Canada for 3yrs now and found job right away ever since then.i remember the time i applied for a credit card under BMO i got refused.I went to Zellers a week after to purchase a digital camera, i thought they will accept my credit card from my country where i belong but then again i got refused. what they did is they let me filled up a form for HBC credit card (not mastercard) and ofcourse they get my personal info's including my credit card abroad.And then after couple weeks i got a mail from them attached is the HBC credit card with a $500 credit limit.From there i started building my credit history.
Two months have past i applied for Options Canadian Tire Mastercard and again i got approved with a $1200 credit limit and then after a year another one from Presidents Choice.Now i have them all with higher credit limits.

For Ann, since they have been declining you just take a break from applying with those major credit cards. Mayb try to get a credit card from the stores like Zellers, Walmart etc. and from there start to build your credit history.
Good luck i hope this might help..

[Dee]

Don't know if you caught this story or not?? Seems like we are having credit creep coming up from the south. The U.S. banks were also cutting credit limits, raising c.l. interest etc...Canadian banks are beginning to behave like those in the U.S., granting credit to those who don't need or want it and cutting credit limits as people pay down their consumer debt.

http://www.theglobeandmail.com/servlet/story/RTGAM.20090116.wconsumer17/BNStory/crashandrecovery/home

Even more fascinating, to me, is the mortgage point spread. Very interesting times we're living in.

[KenHoughton]

I'll dissent from the general and suggest that something has tightened.

MBNA (with which I have had cards in the States for longer than Ann has been alive) sent me a pre-approved Platinum Card application. Since my Canadian credit limit is a minimal-allowed BMO secured card and mandatory snow tires are expensive, I figured why not?

Long telephone discussion, assurances that they would consider me for other cards just in case the Preapproved thing didn't work out, etc.

Form letter a few weeks later stating that they were unable to offer anything due to my lack of "credit history." (That gulping sound you hear is the MBNA America [now BofA] loan officers whose twenty-plus year, multithousand dollar LoC is apparently meaningless once 87 becomes 15.)

That said, applying for five cards in the same period of time is a credit flag and Ann should probably wait a while before applying for anything else, unless she can secure a card through her bank.