Making plans to take on a new credit card can be exciting. You have the opportunity to take advantage of built-in rewards programs, build up credit, or take advantage of an interest-free period to pay off some debt more quickly. But if things didn’t go as planned and you were rejected, what are your next steps? What do you do when you are denied a credit card?
With the pandemic, lenders have tightened credit approvals, and many Americans are finding themselves in the credit card rejection pile. Here’s a look at how credit card companies are tightening their approval processes, and three important questions to ask yourself if you are denied a credit card.
What has changed with credit card approvals?
This year, 13% of Americans were rejected for a credit card, according to a survey from Bankrate and YouGov. The pandemic and resulting unemployment rate created uncertainty for lenders who were unsure if borrowers could make debt payments. As a result, lending standards have become more stringent, with more than 70% of U.S. banks tightening standards on credit cards.
It’s common for credit card companies to enforce restrictions during economic downturns. Some of the ways lenders are scaling back include:
- Requesting additional employment verification
- Reducing marketing efforts to attract new customers
- Applying smaller credit limits
- Allowing fewer balance transfer offers
Although a credit card denial can be a source of embarrassment, these restrictions might be the reason why you weren’t approved, so it’s nothing to be ashamed of. But if you think there are steps you can take to put your finances in stronger position, ask yourself these next three questions.
1. Do you really need a new card?
The first question to ask yourself is do you really need a new card? Borrowers are sometimes lured to new credit cards by hefty sign up bonuses or 0% interest periods. Interest-free balance transfer offers and 0% purchase offers were among the most-mailed offers in 2018, according to a Credit Suisse report. Couple that with the average offer duration of 13.6 months, and it can be easy to see why borrowers might be enticed to open a new credit card.
However, remember that these introductory offers are just temporary. Soon you’ll be back to paying a fairly high interest rate and have the responsibility of paying off another credit card. A credit card rejection can help you take a step back and assess what you actually need to help you along your financial journey.
2. What problem are you trying to solve with the new card?
Being denied a card can be annoying, especially if you aren’t sure why you were rejected in the first place. Before you call up the credit card company demanding answers, ask yourself what problem you are trying to solve by applying for a new card. There are a few areas you might try to address with a new credit card.
- Build your credit score
- Transfer existing debt
- Use as a backup emergency fund
- Get discounts on purchases
- Earn free rewards
- Pay for school tuition
- Protect bank account against lost or stolen debit card
- Replace maxed-out cards
Some of these goals could be well-served with a new card, such as building your credit score or receiving discounts on purchases through a cashback program. However, if you intend on using the card to pay for tuition, to replace a maxed out card, or to use as an emergency fund, a new card isn’t the best solution and could push you further into debt.
3. Is there a silver lining to your credit card rejection?
A rejection can be disappointing, but if you want to look at this experience as a ‘wallet-half-full’ outcome, there are some positives to consider. You might be encouraged to revisit your debt situation and look for other ways to manage your debt more effectively.
In addition, you could be motivated to look for a better deal. A credit card is not something you want to accept as an impulse purchase, so this could be a good time to do more research. Also keep in mind that it may just take some time for lenders to loosen restrictions. A little patience allows for financial reflection – and an improved economy – which could be just what your budget needs.
What to do if you want to apply for a new card for the first time
If you are applying for your first card, there is a likelihood that you could face obstacles in order to get approved. One reason is you won’t have an established a credit history to show you are a responsible borrower. It’s a double-edged sword, isn’t it? You, need a credit card to build credit history, but can’t get a credit card without the history.
One way to work around this issue is to apply for a credit card with your current bank. Your bank will have access to your current financial statements, which may help show you how to handle your money responsibly. While a credit card with a local bank may not come with a bunch of perks or rewards, it’s a great place to start. After a year or two of established history and on-time payments, you can apply for a better card that suits your needs.
When your financial situation needs a fresh start
Credit card rejections can point to a more serious sign that your financial situation needs a fresh start. If you want to know what other options you have to manage a large debt problem, our Certified Debt Consultants are available to discuss what you can do next. Learn about Freedom Debt Relief’s debt relief program and if it makes sense for your situation. Get started for free here.
- 7 Smart Ways to Use Your Credit Cards in a Recession (Freedom Debt Relief)
- Nearly 1 in 5 Millennials Has Been Denied a Credit Card This Year (CNBC)
- How to Protect Your Credit Score During the Covid-19 Recession (Freedom Debt Relief)
- This is Why You Might Not Get Approved for a New Credit Card Right Now (CNBC)