While getting declined for a credit card can be frustrating, it's also an opportunity to identify and fix issues affecting your creditworthiness.
We'll explore the most common reasons for credit card denials and provide actionable steps to help you qualify for our best credit cards in the future.
Key Insights on Credit Card Denial
- Understanding a credit card denial and taking corrective action can transform future rejections into approvals.
- Improving your credit score, income-to-debt ratio, and credit history with timely repayments can significantly increase your chances of approval.
- Each credit card application is a "hard inquiry" on your credit report. To minimize the number of hard inquiries, apply for only one credit card at a time.
- If you're starting out building credit, consider using secured or starter cards to prove your creditworthiness while building credit.
Common Reasons Credit Card Applications Are Declined
1. Low Credit Score
Credit card issuers evaluate your creditworthiness through a credit check, using your score as a key approval factor. Your credit score, derived from your credit history, helps issuers assess lending risk. Most rewards cards require a minimum score of 670 (good to excellent range) for approval. Falling below an issuer's minimum threshold will result in denial.
However, a low score is temporary. Here's how to improve your approval odds:
- Check your score first: Before applying, it's best to check your credit score to ensure you apply for cards that match your profile. This reduced rejection risks.
- Build better credit: Focus on consistent on-time payments, reducing existing debt, and lowering credit utilization. These factors directly impact your credit score
- Start with suitable cards: Consider secured cards or credit builder credit cards—but carefully review terms, interest rates, and fees before applying
2. Insufficient Income
When you apply for a credit card, you're essentially seeking a loan from the issuer, which can accrue interest. Credit card companies want to ensure your income can support the potential debt. If they find your income insufficient, your application may be declined.
Here are some strategies to improve your chances of approval:
Opt for lower-income cards: Some credit cards cater specifically to lower-income individuals. Research options with more lenient income requirements and lower credit limits to find cards that fit your financial situation.
Lower your debt-to-income ratio: If you have existing debts, such as credit card balances or loans, work on reducing them. A lower debt-to-income ratio shows you have more disposable income, making you a more attractive candidate for credit.
Accurately report income: Remember to include all sources of income on your application. Leaving off regular income like freelance work or alimony may result in a declined application.
3. Too Many Recent Applications or Inquiries
It might seem logical that applying for multiple credit cards increases your chances of approval, but the opposite is often true. Each time you apply, the issuer conducts a hard inquiry on your credit report.
While each inquiry may only lower your FICO score by a few points, multiple inquiries in a short period can signal to lenders that you are overly reliant on new credit.
If your application is declined due to too many recent inquiries, here's what you can try:
Space out applications: At a minimum, wait 90 days before filing out an application for any new cards. If you can hold off for six months, your chances of approval will increase.
Focus on one card at a time: Instead of applying for several cards, concentrate on researching and applying for just one card you believe you're most likely to be approved for.
Build your credit first: Use the time between applications to strengthen your credit profile. Focus on making timely payments and reducing your debt-to-income ratio.
4. High Existing Debt
When you apply for a credit card, issuers evaluate your debt-to-income ratio. A high ratio or a history of maxed-out cards can indicate to lenders that you may be overextended and struggling to manage your finances.
While addressing high existing debt can be challenging, there are actionable steps you can take to improve your chances of future approval:
Pay down balances: If you carry high balances, focus on paying these down to reduce your debt-to-income ratio.
Avoid new applications: Don't apply for new credit cards until you significantly reduce your debt. Each application can further impact your credit score and may lead to additional denials.
Create a repayment plan: Consider implementing one of the following strategies to pay down your debt:
- Debt snowball method: Focus on paying off your smallest debts first. Once those are cleared, apply the freed-up funds toward larger debts. This method can provide quick wins and motivation.
- Debt avalanche method: Concentrate on paying off debts with the highest interest rates first. This approach can save you more money in interest over time.
5. Limited Credit History
Credit card companies prefer to approve applications from borrowers with established credit histories. A solid credit history provides valuable insights into your financial behavior and ability to manage debt. Without this history, your application may be declined due to insufficient data to assess your creditworthiness.
Luckily, building a credit history is achievable, even without an existing credit card. Here's what you can do:
Start small: While you may not be able to get an unsecured credit card, you can likely take out a secured credit card. These cards are backed by cash as collateral, and they build your credit score without risk to the issuer.
Become an authorized user: If someone in your family has good credit, ask them to add you to their card as an authorized user. Their creditworthiness and timely payments will help you build a positive credit history.
Build gradually: Once approved for a card, use and pay off small amounts regularly to establish a positive credit history.
6. Errors On Your Application
Any mistake on your application, even small ones like a one-letter typo, can cause it to be declined. Credit card companies rely on their applications to gather information about the applicant, and errors may prevent them from accessing accurate data.
While you can't change the outcome of a previous application, you can take steps to prevent errors in future submissions:
- Double-check everything: Before you hit submit, reread your application to check for errors. Consider asking a friend or family member to look it over as well; a fresh set of eyes can help catch errors you might have missed.
- Provide accurate information: When filing a credit card application, ensure that all information—income, debt, address, and employment details—is reported accurately. Intentionally omitting information or providing false details can lead to automatic denial of your application.
7. Recent Negative Credit Events
Even if your credit history has been pristine for years, recent late payments or defaults can mean the difference between an approved or declined credit card application.
While one mistake or a few mistakes won't sideline you from credit card approvals forever, there are some things that you should do before you apply for a new card again.
Rebuild your credit: Accidents happen, but it's crucial to avoid missing payments in the future. One effective way to safeguard against late payments is to set up automatic payments.
Review your credit report: You’re entitled to one free credit report each year from the three major credit bureaus: Equifax, Experian, and TransUnion. Visit AnnualCreditReport.com to access these reports.
Tips for Avoiding Future Rejections
- Match your applications: Apply for cards that align with your credit profile.
- Monitor your credit: Regularly check your credit report to stay informed.
- Manage debt wisely: Keep your debt levels under control and maintain a positive payment history.
Bottom Line: Get Your Credit Together
Receiving a declined credit card application is disappointing, but it's also an opportunity to learn more about your credit history. Understanding why applications are rejected is the key to ensuring that you take actionable steps to secure credit card approvals in the future.
