Denied a Credit Card? Here’s What to Do Next
- The credit card issuer must send you a letter providing the specific reason for the denial.
- You may still have options, such as secured credit cards, credit builder loans, or as an authorized user on someone else’s card.
- If your application was denied because you have debt problems, consider debt relief for a fresh start.
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While a credit card denial is disappointing, believe it or not there is a silver lining. While the credit card issuer formally refers to a denial as an “adverse action,” that decision can turn into a positive for you over the long term. Learn what to do next and how to improve your chances of getting credit card approval.
What does it mean that I was denied a credit card?
A credit card denial is based on your application. Lenders use credit scoring systems to determine whether an applicant is likely to pay back the money charged on a credit card.
When you apply, the credit card issuer reviews your application and your credit report. The company reviews many details, most of which can be found on your credit report:
Your payment history
Your debt balances
Your credit limits
How long you’ve had credit accounts
Whether your balances are going up or down
How much your last payment was on your other debts
What types of credit accounts you have experience with
Whether you’ve applied for new accounts recently
Your income if you disclose it (It’s not on your credit report)
From this information, the issuer decides whether to approve your credit card application.
Reasons your credit card application could be denied
Credit card applications are denied for various reasons. Here are some of the most common:
Low credit score: It’s possible you just applied for the wrong type of card. Top cards with battractive perks generally require excellent credit. Every lender sets its own credit score ranges and decides what they’ll consider a “good” or “excellent” score. But generally, most would consider a 670 or higher to be good. You can qualify for a credit card with lower scores but maybe not a top rewards card.
High debt-to-income ratio(DTI): Your DTI how much of your money you spend on debts each month. The formula is monthly debts divided by before-tax monthly income. To lenders, it’s an indicator of whether you can afford a new payment. A healthy DTI ranges from 25% to about 50%, but the lower, the better.
Recent delinquencies or bankruptcies: When it comes to lenders, few things are as important as a history of paying bills on time. A recent bankruptcy makes a new credit card approval difficult. There are other options, such as a secured credit card.
It is illegal to deny a credit card application based on discrimination. Certain factors are not allowed for consideration when making credit decisions. These factors include:
Race
Religion
Gender
National origin
Sexual orientation
Marital status
Age
Whether any of a person’s income derives from public assistance
Once you find out the reason for denial in your particular situation, you can take steps to gain approval on your next application.
How to find out the specific reason for denial
You have rights that kick in when your application is denied. You have the right to find out why your application was denied. Under federal law, if you ask within 60 days of the denial, the lender must give you the specific reasons for your application’s denial or tell you that it is your right to learn these reasons.
If the denial is based on information in your credit report, the lender must do the following:
Provide the three-digit credit score used in making the decision
Name key factors affecting your score
Give you the name and contact info for the credit reporting agency providing the report
Let you know that you have a right to get a free copy of your credit report from that credit reporting agency within 60 days of the notice
Explain the process to correct mistakes in your credit reportor add information to make the report more accurate
What to do if your credit card application was denied
Don’t panic or take a credit card denial personally. Find out the reasons your credit card application was denied, and use that information to improve your credit situation. Depending on the stated reason, you might ask the credit card issuer to reconsider its decision.
Consider alternative options
Secured credit cards: Build credit with a secured credit card.You’ll need a security deposit but otherwise a secured credit card works like a standard credit card. After a period of responsible use you can get your deposit back and transition to a standard credit card.
Credit builder loans:These loans help you establish a positive credit history by letting you take on a small amount of debt. As you make on-time payments, with fixed interest, you establish your creditworthiness. The lender deposits your payments in a savings account or certificate of deposit, which you can access once the loan is repaid. This is usually a good option for those with no credit history or low credit scores.
Authorized user: If you don’t have much of a credit history, look into asking a relative with good credit to add you as an authorized user on one of their cards. The primary cardholder is responsible for paying the bill, but both people get the credit benefit if the bill is paid on time and the card isn’t maxed out.
Steps to improve your credit score and financial situation for future applications
Get started on improving your chances of approval in the future. That usually means improving your financial situation, and it’s something most people can do even with small steps.
Pay all bills on time
Add utilities to your credit score. Normally, your cellphone and utility bills are not included in your credit report. Contact the credit reporting agencies to have these bills added. Paying them on time and in full can improve your credit score.
Improve your credit utilization ratio. If you have credit card debt, prioritize paying it down.
Tips to avoid credit card denial in the future
Check your credit report regularly for errors and accuracy
Some credit report errors can hurt your credit score. The major credit bureaus –Equifax, Experian, and TransUnion – provide you with one free credit report every 12 months on AnnualCreditReport.com.
If you find a mistake, follow the credit reporting agency’s instructions for disputing it.
Pay your bills on time and keep your debts low
When it comes to credit, paying your bills on time consistently is a major factor. Missed or recent late payments can really harm your credit score.
You’ll get more points on your credit score if you have credit but don’t use it. The higher your balance is compared to your credit limit, the more you can hurt your score. Maxing out credit cards causes major credit score damage.
Choose credit cards that match your credit profile and financial goals
Choosing the wrong type of credit card, such as one requiring excellent credit when yours is fair to good, can mean denial of an application for that particular card. Whenever you apply for a new account, the lender will probably do a hard credit check, and hard credit checks generally cause your score to drop by a few points. So if you apply for a card that you don’t qualify for, you could make it even harder to qualify for a different card.
When your financial situation needs a fresh beginning
Credit card rejections can point to a more serious sign that your financial situation needs a fresh beginning. If you want to know what other options you have to manage a large debt problem, our Certif
ied 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.
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How long should I wait before reapplying for a credit card?
Be cautious about reapplying because every time you apply, you could lower your credit score a little. So take the time to find out why you were denied, what you can do to improve your chances, and which credit card is suited to someone with your credit score. Unless you can do something to improve your credit score quickly, you might want to wait six months.
When you’re denied credit, by law, you must receive an adverse action letter listing the reasons for the denial. With this knowledge, you can start taking steps to improve your finances so that approval is more likely in the future.
In some cases, you can ask the credit card issuer to reconsider your application based on the reasons for denial. Especially if the denial is based on an error in your credit report.
Before reapplying, see if the credit card issuer offers prequalification. By using these tools, you can get a good idea of whether your next application will succeed.
Will a denied credit card application hurt my credit score?
No, a denied credit card application shouldn’t affect your credit score. That’s because the denial doesn’t appear on your credit report.
However, when you apply for a credit card, the lender makes a hard inquiry on your credit report. That hard inquiry could ding your credit score by a few points. While hard inquiries stay on your credit report for up to two years, they stop affecting your score after one year (and the effect diminishes over that time).
What is a secured credit card?
Most credit cards are unsecured. That means there is no collateral, or security deposit pledged for loan repayment. The lender assumes the risk if the borrower doesn’t pay the bill.
A secured credit card requires a cash deposit to act as a form of insurance that you will repay the debt. Often, the amount of the deposit will be your credit limit. Your purchases are not, however, deducted from the deposit. That’s how prepaid debit cards work, not secured cards. The credit card issuer wil hold onto your deposit. You can make transactions, and you’ll receive a bill to pay each month. If you don’t pay off your charges by the due date, you’ll pay interest on your balance.
If you get a secured card, be sure the issuer reports to the major credit reporting agencies. Otherwise, you won’t build credit. Stay up to date on payments, and a secured card is a good way to build your credit history and boost your credit score.