Getting a rejection letter after you’ve applied for a credit card isn’t as uncommon as you might think. Especially if you desperately need quick access to a line of credit. Being declined once doesn’t mean you’ll never be eligible for a credit card again. When your credit card application is denied, it might be because you aren’t a profitable candidate for the credit card company. Or that you don’t meet certain criteria at the moment.
Knowing the reasons for the denial is important as it will help you actively build your credit score in the future. It’s vital to know what is the right thing to do after your application is denied, and we are here to guide you every step of the way.
In this guide we’ll go through:
- Possible reasons why you may be denied a credit card
- Credit card denial and credit reports
- What to do when your application has been denied
Possible Reasons Why You May Be Denied a Credit Card
Once you’ve started the application process with your financial provider, a process called ‘underwriting’ starts. This is basically a procedure that all credit card companies follow to comply with government rules and regulations regarding lending money. It’s to ensure that the borrower is trustworthy and likely to repay.
When your application is unsuccessful during the ‘underwriting’ process it might be because you aren’t seen as someone who has enough creditworthiness, or that you aren’t seen as profitable to the lending company. However, credit card companies all have different underwriting criteria for their various types of credit cards.
Here are a few possible reasons why your credit card application may be rejected:
Total Loan Amount Too High
If you currently have too much debt on a variety of cards and accounts, then credit card companies will see you as a liability. When your existing debt isn’t being paid off and you apply for even more credit, then you lose creditworthiness.
Income Doesn’t Meet Requirements
Most credit card companies require applicants to meet their income requirements. This means that applicants should have an income equal to, or above, a certain amount. The income requirements differ between credit card issuers. Most of them don’t publicly announce what their minimum requirements are.
If your income is too low, this might be the reason why your application has been denied.
Number of Credit Cards on Your Name
Depending on your credit card issuer, there might be a limit on the number of credit cards an applicant can have to their name. If you have multiple active credit cards, your application might be denied.
Too Many Applications Within a Short Time
Every time you apply for a loan or credit line, there will be an inquiry on your credit score. All financial institutions do an inquiry with the three major credit bureaus to determine whether you have good credit.
Applying for too many loans or credit cards within a short amount of time will indicate numerous credit inquiries. It can be the reason why your credit card application was denied.
Your Credit Score is Poor
Even though there are many different credit scoring methods available, the most common one used is the FICO scoring method. It uses standard calculation and scoring to ensure credit scores are determined in a fair manner, making credit score statistics accurate.
On the FICO scoring system, your credit score can range between 300 (poor) to 850 (excellent). The lower your score, the more of a liability you are to the credit card provider. Most credit card issuers have minimum credit score requirements. If you have a poor credit score, then you might be denied.
High Credit Card Balances
Credit card companies take into account how much of the available credit you actually use. It is advised that you keep your balances below 30%. Using all of the credit available to you or maxing out your credit cards won’t reflect well on your creditworthiness.
This is a note on your credit history that indicates that you haven’t paid a previous credit card balance for six or more months. Expect a denied credit card application if you haven’t stuck to a prior payment plan with another credit card provider.
It’s important that you are honest when filling in your credit card application. Sometimes applications are rejected because the information on the form is either incomplete or inaccurate. Take special care when filling it out.
When credit card companies check your credit history, they might look into your employment history as well; especially if you haven’t been employed at your current job for a long time. When your employment history is unstable and inconsistent, credit providers might question your ability to pay monthly fees.
Getting a consistent monthly salary will boost your application. Try not to submit an application that indicates a lot of inconsistency and job-hopping.
Age and Location
Most credit card providers have a minimum age requirement of 18 years. If you’re not yet within the legal age, your application will be denied. Some credit card companies only function within certain areas and states. If your permanent address isn’t within these areas, you will be denied.
You Don’t Have a Credit History
If there’s no proof that you are a trustworthy credit card owner who can stick to a payment plan, then your credit card application might be denied. In order for FICO to do a fair credit score calculation, you need to have had an active credit line account in the past 6 months. When your credit history is non-existent, credit card companies have no proof that you are a reliable client.
To help you build your credit and to have a good FICO score, you can consider using Chime Credit Builder. This will help you improve your credit status.
You Have a Recent Delinquency
Whenever you commit a minor crime or have a criminal public record, it can affect your credit score and therefore your application for a credit card. Once a public record or delinquency is first entered on your credit report, you are most likely to be denied a credit card.
The more time passes, the less impact these records will have on your application. Credit card issuers take into account the history of your delinquencies and not just the type of offense. If you have a recent late payment report, even if it’s 6 months ago, then you might be declined. A late payment report from 5 years ago won’t have the same negative effect on your application.
If you are still unsure why your credit card application was declined, then you can check the adverse letter sent to you by the credit card company. It usually states the specific reason for rejection.
How Does Credit Card Rejection Affect Your Credit Score?
A denied credit card from any credit card company doesn’t negatively affect your credit score. It’s the hard inquiry on your credit report that can have a negative effect. You might notice a decrease in your score after your application has been denied; this is because the company used a hard pull/inquiry to find out your credit history.
This decrease is a result of an inquiry done by the credit provider from the three major credit bureaus: Equifax, Experian, and TransUnion. This inquiry will appear on your credit report. The decrease is usually not very noticeable, perhaps 5 points at most. After some time, your credit score might increase again, as long as you don’t have multiple hard pulls on your credit history in a short amount of time.
Before you apply for a credit card, make sure you are aware of whether the company will be applying a soft or hard credit check. Too many hard inquiries in a short amount of time will have a negative effect on your credit score.
If you’ve had many denied credit cards and loans within a short time, then the worst thing you can do is trying to apply with more credit providers.
What Should You Do After Your Credit Card Application Was Denied?
Having your credit card application denied can be very frustrating. Luckily, there are tools and methods you can implement to ensure approval in the future. Here are a few things you can do after your credit card application was denied.
Avoid Applying for More Credit Cards
When your credit card application is denied, don’t continue applying with numerous other credit card companies. The more applications are noted on your credit report, the lower the chances of you being approved. Credit card applications are entered on your credit report instantly.
Applying for numerous credit cards within the span of a few hours will only make you seem desperate, lowering your chances even more. It’s best to wait and find out the reason why your application was denied before applying again.
Request a Free Credit Report Copy
Most credit card companies give you the option to request a free copy of your credit report within 60 days of rejection. If there is any misinformation noted on the credit report, you can file a dispute. After disputes have been resolved, you can ask the credit card issuer to review your application again.
If you want to check your credit report from the three major credit bureaus, then you’ll have to request them separately from them all.
Adverse Action Letter Information
What can you do when your credit card application is denied? Another thing you can do after denial is to check your adverse action letter. Most credit card issuers will send you an adverse action letter when your application is denied. This letter will be provided to you within 5-10 business, but at the most within 30 days. An adverse letter states the specific reason why your application hasn’t been successful.
Specific reasons could be any of the reasons mentioned earlier in our guide. Once you know the exact reason, you can start implementing methods and plans to improve any errors or poor credit scores.
Take Actions to Repair your Credit Score
If you have a poor credit score, you should take action for improving and fixing your credit score. When you have bad credit, it reflects badly on your credit report. Bad credit includes things like unpaid collections, recent delinquencies, too many credit cards, maxed-out credit cards, and unpaid debts.
It is going to take some time, but start paying off existing credit debt and loans. Dispute any errors on your report or catch up on payments and repay any outstanding debts. Going forward, stick with a monthly payment plan to show that you are a diligent payer.
Are you wondering how long you have to wait to apply for a credit card after being denied? After 3-6 months of actively repairing your credit score, you can apply again. The longer you wait and the longer you practice healthy repayment habits, the more likely you are to be approved.
Build Your Credit History
When you’ve been denied a credit card because you don’t have any credit, then you should start building good credit. This means you can apply for small accounts, like a retail store card or a subscription with a mobile service provider. Be careful not to spend too much or get into large arrears, as these kinds of cards can have high-interest rates.
When you use retail store credit cards wisely, you’ll be able to build a good credit history and improve your credit score. Make sure you stick with a monthly payments for at least 3 months before reapplying for a credit card again.
As long as you repay any debts, use only 30% of your available credit, and stick to your repayment plan, you’ll be in good standing with the credit card issuers.
Getting your credit card application rejected doesn’t mean it’s the end of the road. Identifying the reasons for rejection is important in order for you to take further steps. Following the post-rejection steps listed in our guide, you’ll be able to rebuild your credit and build creditworthiness for future applications.
No, getting denied won’t have any impact on your credit score, but the hard pull performed by the credit card company might have a negative effect on your credit score.
No, only active accounts like past loans and credit cards will appear on your credit history report.
There are many factors that play a role in a credit card application being denied. This could be because you have a poor credit score, don’t have a credit history, have too much existing debt, your income doesn’t meet the minimum requirement, or you’ve done too many credit card applications within the last few months, amongst many others.
Yes, most credit card issuers provide a reason for denial in an adverse letter. These letters are issued within 5-10 business days.