Ben Todd | Jun 2, 2017 | 1
7 Reasons Why Your Credit Card Application Was Denied (and how to fix them)
Receiving news that you got denied for a credit card is always hard to accept. There is no sugar coating the decision, it means there is something wrong with your credit in one way or another. It can definitely serve as a wake up call and increase your awareness on the importance of credit. Many people think a good credit score means they will automatically be accepted for another card.
This is not the case as you will see in this article.
Fortunately, there are some things that you can do to increase your credit over time to be accepted in the future, and there are also things that can be done if you really need to borrow money on credit.
Now, if you’ve applied for a credit card and gotten rejected, the first thing you need to do is find out WHY the credit card company rejected you. Yes, there are some general things like your credit score and other credit factors that influence their overall decision to reject or accept applicants, but often you can take a the guesswork out of the equation.
Because the card company may just tell you WHY you were rejected.
How to Tell Why the Card Company Rejected You
If you are rejected from a credit card offer, a credit card company often mails you a letter called an adverse action letter, giving you the exact reason why you were denied.
However, if you do not receive a letter or get a good reason from the credit card company there is an alternative course of action. As an alternative you can dispute the rejection if you feel that it was denied due to error or misinterpretation. If you made a mistake on the application, the credit card company is not required to call you and tell you before they asses the application, as they will just send you a letter.
Many times speaking to somebody directly can help turn a denied application into an approved one. It’s worth a shot on your part.
Now, if you don’t get that letter or you want to know some of the factors credit card companies look at to determine whether to reject a card or not, here are the most common reasons someone is denied a credit card.
1. You Have Bad Credit
This is the most likely reason. If you have a good credit rating, most credit card companies will not reject your application. If your credit is bad to so-so, you are far more likely to suffer a rejection of your card application (though again, this depends on the card company, the type of card (some credit cards are for people with poor credit), and your overall credit history past).
Find Out Why You Have Bad Credit
First, it is important to know the reasons you got denied so you know what areas you need to improve on.
On your own, you can tell right away what your credit score is by doing a credit check. There are a lot of companies online that offer credit checks. I recommend the FreeCreditScore360 offers, as you can sign up for a Free 7 Day Trial Credit Score Check. This will tell you exactly what your score is.
This is the most common reason as many people just are not aware of their credit score before they apply to a credit card.
If your credit score is below 630 there is a good chance you will be denied.
Fico Credit Score Chart
Here is how credit scores are classified:
720-760- very good
How are Credit Scores are Calculated
Credit companies are notoriously secretive about exactly how they determine your credit score. We’ve written an article, however, that breaks down some of the main factors that contribute to your overall credit score, so read it for more information.
What You Can Do About Bad Credit?
If you were denied because of bad credit, fortunately there are a few things you can do to repair it. If you have bad credit it is because you have a lot of debt, missed payments, or were late on payments. Start by paying down your debt load.
A good rule of thumb is the 30% rule, which means to only use 30% of your credit limit at a time. Next, ensure you do not miss any payments and do not make any late payments, as these will hurt you even if you do only have 30% or less of your credit used. It will take time, but paying down your debt will improve your score dramatically.
2. You Have Too Many Credit Cards
If you already have a few credit cards, you might be denied simply because they view it as an increased risk of missing payments because you have so many cards to deal with. This can even happen if you have a good credit score. This is usually in combination with other factors.
What You Can Do About It
Unfortunately, If you have to many credit inquires all you can do is wait before you apply for any credit cards, as card issuers generally only look at the number of inquires you have had within the last 1 to 2 years.
If you are denied because of to many credit cards, you can close out one or more of the cards, however this can have a negative impact such as hurting your credit score, although it only affects it a small amount it. Pay off and close your card with the lowest credit limit so it does not hurt your utilization rate to much. Your utilization rate is a tool that uses your available credit to help assess you a credit score.
3. You Have To Many Hard Credit Inquiries
Soft credit checks inquiries don’t impact your credit history (or barely at all). These occur when a company does a credit check as part of a background check for something or you do a personal credit check.
Hard credit check inquiries are when financial institutions (like your bank lender, car loan company, or a credit card company) do a credit check in order to make a financial lending decision. These sort of credit checks do impact your credit and the record of such a check will stay for two years on your credit report. As such, you should try to limit hard credit inquiries as much as possible as they are a signal (on your credit report) that you are seeking credit funding, and too much of this can be construed as a bad thing by some lenders.
The high amount of credit inquiries getting your credit card denied is usually in combination with you having a credit score ranging from fair to poor. This alone probably won’t get you denied without having bad credit or other risky factors on your report.
What You Can Do About It
Simple: avoid applying for too many loan products or at least limit such requests to occasional ones.
4. You Have a High Debt to Income Ratio
Many times if you owe to much money compared to your income you can be denied a credit card. This is called the debt to income ratio which is used by many credit card companies and financial institutions. This can even occur when you pay all your credit card bills and all other bills on time.
What You Can Do About It
If you are denied because of to much debt, then you should not be applying for a new credit card as it will only put you in a deeper hole. Your main focus should be on lessening your debt load by making regular payments. It can be beneficial to consolidate all your debt into one debt load and as a result you will pay a lower interest rate. This will help you pay off your debt in a shorter amount of time. You can do this by contacting your financial institution and discussing your situation. This process is free to do and is a great tool for anybody with a high debt ratio.
After you have paid down your debt you can then apply for a new credit card, but ensure that your debt is paid down by a wide margin. If you have consolidated your debt into one debt load, then wait until it is paid in full before you apply for a credit card.
5. You Have Short (or NO) Employment History
If you have not been employed for a long enough time, credit card companies will see this as a negative and possibly deny you a credit card, as they might view you as high risk, or unstable. Many times this will be the case if you have a short employment history along with a poor credit rating, or a high debt ratio.
What You Can Do About It
If you have not been employed very long, it can be very challenging to actually do anything to manage and improve your chances for a credit card. Unfortunately, all you can really do is wait, and apply again at least 6 months later. However, if you are denied, many times it is combination of short employment as well as another issue such as high debt or bad income. You can work to solve one of these problems and you might be able to overcome you short employment history.
If you are a student it will be easier if you have a short or no employment history as you can apply for a student credit card, which usually do not require a lengthy employment history.
6. You Have Limited Credit History
If you have not had any sort of credit established for a long period of time, the card company might view you as a high risk applicant. Generally, you need to have some sort of credit score established, which means you have to have credit for at least 6 months before a credit bureau can assess, and give you a credit score.
What You Can Do About It
If you have a limited credit history you need to demonstrate that you can pay off any debt efficiently. You can do this by taking small loans and paying them off, or apply for a secured credit card. With a secured credit card, you put down a deposit and your credit limit will be equal to the amount you deposited. Make payments regularly with that card and it will build your credit quickly, allowing you can move up to a regular credit card quickly.
7. Your Income is Low
If you do not make enough money you can be denied a credit card, as you are viewed as a high risk applicant to possibly miss payments etc. This is usually the case when you apply for a card that has an annual fee and a high credit limit.
What You Can Do About It
Many times if low income is the reason your are denied a credit card, it is because you have applied to a card with a high limit, or a high annual fee. What you should do is apply to a credit card with a small limit such as a $500 limit. As an alternative you can simply wait until you have been employed for another 6 months, then apply again.
Also, keep in mind that you can combine your income with your spouse’s or significant other’s income, as many credit card applications ask for your household income. This will greatly increase your chances of being accepted for the card when low income is an issue.
You’re Credit Card Application Was Rejected…Now What?
The good news is, a rejection is not forever.
Being denied a credit card might sound like a bad thing, but it can actually provide insight and improvement to a underlying problem.
Make sure to discover why you were denied and follow the steps discussed in this article. Your credit score is very important, as it can have a large impact on vehicle loans and mortgages which are very important in life. But you can change your credit score, if you work at it, repair your credit. A month of keeping on track of all credit payments (while not racking up any new credit issues) can dramatically increase your credit score. It will likely take a few years of good credit behavior before you can switch your score from bad to very good, but it is possible.
If your credit score is decent, then you need to look at some of the other factors discussed. If you have TOO many credit cards, this can cause problems. Consider consolidating to one or two (assuming you are trying to apply for a better one). If you have little employment history, get MORE. If your debt to income ratio is high, work on lowering it.
The bottom line is that all of these factors are fixable on your part.
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If you have bad credit and need a credit card or you want to work on fixing your credit, one of the best solutions is to get a secured credit card. These are basically pre-paid credit cards where you give a bank a set amount of money, and the money becomes the ‘credit balance’ on the card. You treat this like a regular credit card and in time, your credit will build up and the bank will refund your secured amount and give you a regular credit card. Read our article on the best secured credit cards for people with bad credit history.