Nobody likes rejection, but knowing what you can do next time to avoid it can help make up for it. There are several reasons why your credit card application may get denied, but that doesn’t mean you should give up.
If you apply for a credit card and the bank denies you, you won’t be left in the dark. “The Fair Credit Reporting Act requires issuers to send you an adverse action notice if they deny you credit because of information that appears on your credit report,” says Matt Freeman, head of credit card products at Navy Federal Credit Union.
“Many financial institutions send these notices as electronic statements immediately after you apply, or by letter or phone,” he says. The letter should include the following information:
- The reason for your denial.
- The credit bureau the bank pulled your information from and how to contact it.
- Information about your right to a free credit report within 60 days of the denial date.
- Information about your right to dispute the data the bank used to make the credit decision. This applies to errors that are on your credit report.
- Your credit score.
10 reasons for credit card denial
There are several reasons why a bank may deny your application. Here are some of the major ones and what you can do about it.
1. Your income is too low
The Credit CARD Act of 2009 requires that banks evaluate your ability to repay your debts. Unfortunately, banks don’t list their minimum income requirements publicly. So, it’s hard to know whether you’d qualify.
What you can do: Make sure you list all your income on the application. If you’re married, you can count your spouse’s income. If you’re in college, you can count scholarships and grants. In short, don’t sell yourself short by understating your income. If you truly don’t make enough, it may be better to wait until your income improves to reapply.
2. You have too much debt
If you have high loan or credit card balances, it signals to the bank that you’re overloaded. The same applies if your debt-to-income ratio is high. The banks calculate this ratio by dividing your monthly debt payments by your monthly income. In either case, adding more debt to the picture can jeopardize your chances of making on-time payments on all your debts.
What you can do: Always strive to keep your credit card balances below 30% of your credit limit. If you have high loan balances, work on paying those off as quickly as possible.
3. You have too many inquiries on your credit report
Hard inquiries stay on your credit report for only two years, so if you have several in that short period, it comes across as desperate.
What you can do: Minimize your credit inquiries by applying for credit only when you need it. If you already have several inquiries, avoid applying for new credit for a while.
4. You have too many open credit card accounts
If you carry multiple cards to maximize your credit card rewards or for other reasons, it can be difficult to add new ones. Banks may see that you already have a lot of available credit. Adding another card to the mix increases your chances of becoming overloaded with debt.
What you can do: Stick with the cards you already have. If you need the new card for its benefits, consider closing some older cards to free up space for the new one.
5. You have a charge-off on your account
When you default on a loan or credit card account, the lender will charge it off their records. This usually happens once the lender has sold the debt to a debt collector. A charge-off signifies that you are a flight risk, meaning you may use the card and never pay it off.
What you can do: If you have a charge-off on your account, you’ll probably need to wait a few months before applying for a credit card.
6. You have a recent delinquency
Your payment history is the most important factor in your credit score, so late payments can be a red flag for lenders. Fortunately, they lose their potency over time. But if your delinquency is recent, the lender may pass.
What you can do: Always pay on time and at least the minimum amount due. But if you do make a mistake, wait a few months before applying for a credit card and be sure to make on-time payments in the meantime.
7. You have a collection account or public record on your credit report
When a lender gives up trying to collect a debt, they’ll usually sell it to a collection agency. Once this happens, your credit score can take a dive. Public records – bankruptcies, civil judgments and tax liens – can also have a major negative effect on your ability to get credit.
What you can do: If you have any of these negative marks on your credit report, you may just have to wait it out until you can establish some more positive credit history. Keep an eye on your credit score so you can know better when to reapply.
8. Your credit score is too low
Some credit cards are targeted to consumers with a thin credit profile or bad credit. But others require an established good or excellent credit history. If you’re new to credit or have made credit mistakes in the past, lenders offering the latter can cite this for denial.
What you can do: If your credit history is shaky, look to apply for credit cards for bad credit. If you already have some history with another card, keep using that card to build it more. It can take 12 to 18 months to establish a solid credit profile.
9. You aren’t old enough
If you’re under 18, you legally can’t apply for a credit card, even with a cosigner. Even after you turn 18, banks may have stricter income requirements to ensure you have the ability to repay the debts you incur. Once you’re 21, banks give you some more leeway when it comes to their income and credit criteria.
What you can do: If you’re under 18, ask a parent or family member to add you on their credit card as an authorized user. This status can help you build credit. If you’re 18 and older but not yet 21, be sure to apply for a card with a cosigner to resolve any income issues that may arise.
10. Information on your application was incorrect
If you receive a response that doesn’t make sense, it may be that you accidentally made a mistake when filling out the application.
What you can do: Call the bank to double check that you filled out the application correctly. If there was an error, ask whether you can submit a new application or if they can reconsider your application based on the correct information.
Don’t apply again until you’ve fixed the problem
If you get denied for a credit card, don’t keep applying for other ones until you get approved.
“I would recommend working on improving the factors that got you denied before reapplying,” Freeman says.
Adding multiple inquiries to your report in a short period can hurt your credit score. Instead, wait until you receive the adverse action letter to get the scoop on what caused the denial.
So how do I fix it?
If you don’t have much of a credit history, get one or more secured credit cards. Secured cards are easy to qualify for because they require users to place a cash collateral, which is equal to the credit line for that account. For instance, if you place a $1,000 deposit, you can charge up to $1,000 to your account.
When used responsibly, secured credit cards can help you establish credit and build your credit score.
Monitor your credit score through a site such as Credit Karma. Your credit score is a good indicator of your overall credit health. Checking it periodically will give you a better idea of when things have improved enough that you can apply again.
If your credit score is the problem, read this article. It includes tips on how to improve your credit score from 15 experts in personal finance.
Next time you apply for a credit card, check the minimum credit score required by using SuperMoney’s credit card comparison engine.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.