Why Credit Card Applications Get Denied & What to Do Next
The first step after a credit card denial is to find out what went wrong. There are a variety of reasons why a credit card application might get declined, but you should be able to easily determine what you need to work on. Credit card issuers are required to disclose the reason why they declined a credit card application in the rejection letter.
That said, the reasons a card issuer gives for a rejection might be numerous and quite technical. Try not to get caught up in the specifics – particularly since each issuer has its own underwriting standards – but rather try to find the overall takeaway for the denial, such as having too much debt or not enough credit history.
Common reasons why credit card applications get denied:
- You have too much existing debt. If you have a high loan balance or high credit card debt, it will stand out to a card issuer. Having more debt than you have in available credit is a sign to creditors that giving you a credit line may be a risk to them, because you may not be able to take on another monthly payment. Card issuers want to see that you can responsibly use only a fraction of your available credit.
- Your disposable income is too low or your income is unstable. Credit card companies are required to gauge an applicant’s ability to pay when evaluating whether or not to grant a new line of credit. If you do not have enough disposable income to support a new credit card – because you have too little income or your income is unstable – then you would be at a high risk of being unable to keep up with a new card’s minimum payments. In the eyes of a creditor, this could suggest that you may eventually default. Not having enough income could result in you either being approved for a lower credit line than you anticipated, or having your application denied entirely.
- Your credit history is limited. If you have just started your credit journey, chances are you don’t have a lot of proof of your creditworthiness. This is called a “thin credit file” or “limited credit history,” and it’s a common reason for a card issuer to deny a credit card application. That said, there are lots of credit cards that cater to people with limited credit.
- You have too many credit cards. Having too little credit is one thing, but sometimes, having too much credit can be a deal breaker to a card issuer. There is no certain number of credit cards that is considered “too many” – every credit card company sees this factor differently – but it could be a reason your application was denied.
- Your credit score is below the level required by the card. Staying in your lane is extremely important when it comes to credit card applications. You can’t, for instance, apply for a credit card designed for people with excellent credit when you have damaged or limited credit and expect to get approved. Banks will typically specify their preferred credit score range for each credit card, so ensure you read those prior to applying.
- There are too many hard inquiries on your credit report. Every time you apply for a credit card, there will be a hard credit pull on your report. To banks, this could mean two things: First, a hard inquiry causes a drop in your credit score, so banks might find that your score is too low for the credit card you want. Second, too many inquiries could indicate that you have over-applied due to a desperation for credit, which banks may interpret as high-risk behavior indicative of unstable finances.
- You have a recent delinquency. Having delinquencies on record, even if just one, tarnishes your credit reputation as it signifies to the issuers that you are financially unreliable and/or desperate. Given that banks want responsible customers who will make on-time payments, it is unlikely they will approve you for a credit card if you showcase such neglect for financial responsibility.
- There is an error on your credit report. The information on your major credit reports serves as the basis for your credit card decision, so it is conceivable that inaccurate data led to you being mistakenly declined. This could be the result of fraud or of a credit bureau making a mistake, which they are known to do. So, if you were shocked to see your application get denied, you may want to request a free copy of your credit report and check it for inaccuracies. If you find anything out of place, you can then file a dispute with the credit bureau in question.
- There is other negative information on your credit report. Other negative pieces of information on your credit report – such as lawsuits, charge-offs, tax liens or unpaid child support – could be a part of the reason why you were denied the credit card you wanted.
- You are too young. Individuals below the age of 18 may not apply for their own credit card. If you are underage and apply to be the primary account holder, you will be denied.
Now that we’ve covered the most common reasons for a declined credit card application, let’s examine the steps you can take to rectify the situation. There are a number of actions you can take after a credit card denial that can help your chances of being approved in the future.
What to Do After a Declined Credit Card Application
- Don’t be in a rush to apply again – You got denied for a reason, and applying for the same credit card (or even a different credit card with the same card issuer) too quickly isn’t likely to help your situation. Improving your credit standing can take time. If you do want to continue applying for credit cards, keep in mind that your credit score will take a hit each time you apply, and too many applications is a red flag of desperation to card issuers. So make sure you hedge your bets on which cards you’re likely to get approved for, and avoid the ones you know you won’t get.
- Apply with a different issuer – Different issuers use different underwriting criteria, which means applying for a card from a different bank than the one that denied your original application might result in you getting approved for a different offer (assuming the card is suitable to your credit standing).
- Submit a reconsideration request or call the reconsideration line – Though not many people know about this well-kept secret, credit card issuers are required to reconsider your application upon request if you have new or additional information to provide, given that it is provided in a timely manner. If you felt that you were unfairly or illogically denied a credit card, you should definitely consider this option. It can typically be done by phone or in writing, depending on the card issuer.
- Request a free copy of your credit report – It is always a good idea to examine your credit report in order to determine where you stand on the credit score spectrum. Doing so will enable you to spot your areas of strength and improvement which will better enable you to maneuver the credit shopping landscape. Checking your credit files won’t come at a cost either, as we are all entitled to a free copy of each of our major credit reports every 12 months.
- Build, improve and fix errors on your credit report – Given that your credit report is the primary piece of information that banks scrutinize upon evaluating your application, it’s important to ensure that it’s in the best shape possible. This might entail fixing errors, devaluing past mistakes or building out a thin file.
- Apply for a lower tier card – If you do not get approved for a credit card after submitting a couple of applications, you might want to apply for a store credit card – most of which are easier to get than the average consumer credit card – or simply place a security deposit on a secured credit card. Secured cards offer basically guaranteed approval because your deposit serves as your credit line and thereby prevents overspending.
- Reduce your debt to income ratio – If you have a large amount of debt, this is what is most likely hindering you from acquiring the card you want. Focus on paying down your debts so banks will stop viewing you as a “high-risk” candidate.
- Become an authorized user – If you are too young to have your own credit card, having a parent add you to their account as an authorized user is a great way to garner spending power for emergency situations as well as learn how to manage a credit card account and lay the foundation for a strong credit history.
No matter the reason you’ve been denied for a credit card, it doesn’t feel good to get rejected. But it’s best to take it as an opportunity to polish up your credit report. As you check your report, scrutinize any negative information – you may see actions from your past that compromised your credit score, or you may even find mistakes on your report.
Credit rejection may not feel encouraging, but truthfully, you can turn things around faster than you might think. Checking your credit score for free on WalletHub is a good place to start. You’ll get personalized suggestions to improve your score and free recommendations for credit cards you’re likely to get approved for. That way, your next credit card application has a far better chance of being approved.
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