Applying for a credit card and not getting approved can be a little disheartening, especially if you aren’t quite sure why you were denied. If you were rejected because of your credit, companies are required to let you know why you were denied in your rejection letter, which typically arrives in the mail a week or two after you apply. However, until you receive that letter, you may be scratching your head wondering where things went wrong.
We’re here to break down how credit card approval works and why you might have been denied a card. We’ll also talk about how you can fix these issues and be on your way to approval!
How Credit Card Approval Works
To better understand why you might have been denied, it’s important to know how credit card approval works.
The approval process is also known as underwriting, and during the process, a credit card company will assess the risk of lending you money. The bottom line is that a company won’t lend you money if they don’t think you’ll be able to pay it back. During the underwriting process, they will judge your creditworthiness on several factors, many of which come from your credit report.
Why You Might Have Been Denied for a Credit Card
Here are some common reasons why credit card companies deny applicants.
1. Your credit is frozen.
Have you placed a freeze on your credit to prevent fraud? If so, you’ll need to be sure to unfreeze it before applying. Even if you have fantastic credit, you’ll be denied a credit card if the company isn’t able to pull your report. To unfreeze your credit report, visit each of the credit bureau's websites. You may have to sign into an account or call them to unfreeze your credit, depending on their policies.
2. You don’t have a long enough history.
Unfortunately, you can be denied a credit card if you don’t have a long enough credit history. If a lender can’t determine whether or not someone has a history of creditworthiness, they’ll avoid the risk and deny the applicant.
A lack of credit history can happen for several reasons. For one, you might have simply never applied for credit before. If you’ve never taken out a loan of any sort, nor ever applied for a credit card, your credit history will have nothing to reflect. Additionally, if it’s been years since you’ve had any loans or you’ve closed credit cards that you’ve had, they may no longer be listed on your credit report.
There are several ways to build up your credit history, including a secured credit card, becoming an authorized user on someone else's credit card, or even certain installment loans. If you're starting with no history, it will typically take six months to establish your credit score.
3. Your credit score is too low.
Many credit card companies have credit score minimums that you must meet. If your score is below that number, you may be automatically denied.
Thankfully, it isn’t a permanent number, and there are many ways to improve your credit score. Whether you focus on paying your bills on time, paying down debt, or negotiating with lenders, after a few months of financial diligence, you’ll start to see that number increase.
4. There’s an error on your credit report.
Your credit score may be low through no fault of your own. A recent study revealed that nearly one in three Americans will find at least one error on their credit report. Some errors are harmless, but others can be costly to your score.
Here’s your step-by-step process for fixing your report:
- Take advantage of your annual free credit report and review it for any mistakes. You can get your free credit report here.
- Catch any mistakes? Dispute them! Even if you aren’t planning on taking out credit right away, you’ll want to correct the mistakes as soon as possible.
- File a dispute with all three credit bureaus. Each credit bureau—Experian, Equifax, and Transunion—has a dispute portal on their website. Sign up for an account and get those disputes in. You must file a dispute with all three; they don’t share information with each other.
- Do all of this as soon as possible. Going through the dispute process can take some time.
If you get rejected because of a poor credit history even though you’ve always been a diligent borrower, be sure to thoroughly review your report. You may find an error that is bringing it down.
5. Your credit card balances are too high.
If you already have other credit cards that are maxed out, a credit card company will be hesitant to issue you another one. High balances indicate that you are unable to make payments— a major red flag for any lender.
Similarly, too much debt in general can negatively affect your chances of approval. If you have several outstanding loans whether it be a home mortgage, student loan, or a car loan, paying those down may help you out.
6. You have a high credit utilization ratio.
Even if you don’t have thousands of dollars in debt, it’s important to be mindful of your credit utilization ratio. This number compares how much credit you’re currently using to how much credit is available to you.
So, for example, if you have an existing credit card with a balance of $1,500 and the limit is $2,000, your credit utilization would be 75%. However, if you had a balance of $5,000 and your limit is $10,000, your credit utilization would only be 50%. Even though you have more debt in the second scenario, your utilization rate is actually lower.
Credit card companies like to see low utilization rates. If yours is currently high, you can lower the number by doing one of two things. You can either 1) pay down your balance or 2) contact your credit card companies to raise your limit.
7. Your income is not high enough.
Though your income is not listed on your credit report, many companies will ask you to self-report this number. If they don’t think you will have enough steady disposable income to make your monthly payments, it is grounds for denial.
If you are denied because of this, you can call the credit card company to make a case for yourself. It doesn’t always work, but sometimes you can explain why you are still a good candidate for a card. If that doesn’t work, you can apply for a card that has lower application standards, such as a secured credit card.
8. There have been too many recent inquiries on your credit report.
If you’ve applied for several other cards or loans in the past few months, lenders may take it as a sign that you’re in financial trouble and in need of money. If you’ve recently applied for other cards or loans, wait a couple of months before trying again.
9. There is a recent delinquency or your balance has been sent to collections.
Recent delinquent accounts or a card that has been sent to collections is likely to get you declined on the spot, as it’s a major mark in your credit report. Unfortunately, these can stay on your credit report for a while. The best course of action, in this case, is to explain your situation to the credit card company or apply for a card with fewer requirements.
Get Back on Track
The good news is that none of these problems are permanent. Some issues can be remedied easily; others may take a little more time. But know that with a little work, you can get your finances and credit report back on track and get approved for a card.