Denied Credit? 7 Reasons Your Credit Card Application Was Rejected
No one likes rejection. Whether you’re hearing “no” from a potential date, possible employer, or a credit card company, denial stings. But if your latest application for a credit card was turned down, know you’re not alone. Overall, card issuers approved fewer than 60% of all credit card applications they received in 2014, according to data from the Consumer Financial Protection Bureau (CFPB).
Credit denials can happen to anyone. Even those with stellar scores may not always be able to get the card they want if they don’t meet the issuer’s income requirements or have other red flags on their application. Fortunately, if you can figure out the reason why your application was rejected, you can take steps to correct the issue and successfully apply for credit in the future. Here are seven reasons why you might be denied credit, and what you can do to fix the problem.
1. You have no credit history
Your credit history gives a card issuer an idea of whether you can be counted on to repay your debts. If your credit history is sparse, banks may be reluctant to extend you a loan.
What to do about it: Consider piggybacking on someone’s good credit by applying for a card with a co-signer. This can be a good way to establish a credit history, but keep in mind that if you fail to pay your bills, it will negatively affect your co-signer’s credit too. Or get another type of loan to create a more robust credit history.
“Credit card issuers and credit reporting agencies rely on past payment history to gauge how borrowers will do in the future. If you don’t borrow, they have no information to rely on,” Kevin Gallegos, vice president of Freedom Debt Relief, told CreditCards.com. “For those without any credit cards, a student loan or car loan helps build a credit history, as does paying every single bill on time and in full. That includes rent, phone, internet, and utility bills.”
2. You have a low credit score
A bankruptcy, debt in collections, foreclosure, and other financial problems can all sink your credit score and make it difficult to get a new credit card. While banks approved 91% of credit card applications from “superprime” customers (those with score above 720), only 27% of people with scores below 620 were approved, according to the CFPB.
What to do about it: Paying your bills on time and reducing your overall debt load can raise your credit score and increase your chances of being approved for a new card. If you aren’t willing to wait, you can apply for a card specifically targeted at subprime customers, but these can come with onerous fees and high interest rates, though they offer higher approval rates than standard cards, according to the CFPB.
3. You don’t make enough money
Banks want to know you’ll be able to pay your credit card bills. If your income is too low, your credit card application might be denied. Just under 5% of all credit applications in 2013 and 2014 were denied solely because the applicant wouldn’t have been able to pay their debts, according to the CFPB.
What to do about it: Boosting your income is the best way around this problem, but it’s not an option for everyone. Finding a co-signer can help you get credit, as can applying for a secured card. With a secured credit card, you put down a deposit equal to the amount of credit you receive. While your credit limit will be fairly low, you’ll build a credit history, possibly earn rewards like cash back or points, and have access to credit card perks like fraud protection.
4. You’ve applied for a lot of credit recently
Every time you apply to borrow money, whether it’s for a new credit card, car loan, or mortgage, a “hard inquiry” will be noted on your credit report. While the occasional hard inquiry won’t have much of an impact on your credit score, if you have a lot of inquiries, you’ll look like you’re scrambling for credit, which makes lenders nervous. According to myFICO, people with more than six inquiries on their report are eight times more likely to declare bankruptcy than someone with no inquiries.
What to do about it: Limit how often you apply for new credit cards and other loans. If you’re someone who likes to chase credit card rewards and points offers and you find you’re getting denied because of too many credit inquiries, get on the phone. Once you explain the situation to one of the card issuer’s representatives, they may be able to overturn the denial.
“As long as you come across as authentic and knowledgeable and give them good reasons for why you should have the card, they can overlook the fact that you have several recent inquiries,” according to The Points Guy.
5. Your current card balances are too high
If you’re using more than 30% of your available credit, you’re probably going to have trouble getting a new credit card, since your credit utilization ratio is one of the biggest factors in determining your credit score. You may even be getting penalized for using too much of your available credit and not even know it. Even if you pay off your balance in full every month, some credit card issuers will report your total balance at an earlier point in your billing cycle. So if you’re regularly charging $3,000 on a credit card with a $5,000 limit (a utilization ratio of 60%), lenders might think you’re a higher-risk borrower, even if you never carry a balance from month to month.
What to do about it: You can improve your credit utilization ratio by paying down debt and being careful not to charge large purchases on a low-limit card. Or request a credit line increase on your current card, which will lower your utilization ratio. You can also call your card issuer and find out when they report your balance to the credit bureaus. Then, make sure to always pay your balance before that date, NerdWallet’s Lindsay Konsko advised.
6. You made a mistake
A minor slip up on the application, like keying in the wrong Social Security number or omitting a zero from your annual income, can mean you’ll be denied credit. If you fill out a paper application, it’s easy to leave a box blank, which can also result in a denial.
What to do about it: Double-check all the details when filling out a credit card application, whether it’s online or on paper. If your application is rejected, you should receive an “adverse action” notice from the lender explaining why they won’t extend you credit. If you think the denial was the result of an error on your application, contact the credit card company and see if you can fix the mistake.
7. You’re unemployed or a job-hopper
No work? You may be out of luck if you need credit. Understandably, card issuers are reluctant to extend credit to people who don’t have a steady source of income. But even if you have a good job, you might run into trouble getting credit if you’re in the habit job hopping.
“Lenders like to see consistency in employment,” Bruce McClary, spokesman for the National Foundation for Credit Counseling (NFCC), told MainStreet.com. “Borrowers need to show their level of income remains steady and that they have been able to make payments.”
What to do about it: “Make steady employment a priority” to avoid job-related credit denials, says the NFCC. At the same time, make sure to pay all your bills on time and take other steps to burnish your credit score so you can show lenders you’re a low-risk borrower