You might excitedly submit a credit card application, only to be disappointed when your credit card application was denied. Denials are nothing new — as a matter of fact, 13% of Americans have had a credit card application rejected in the past 12 months, according to Next Gen Personal Finance.
This might not be a crazy high percentage, but it underscores an important fact – some people don’t meet the qualifications for a card, and getting credit might be harder than you think.
There are several good reasons to apply for a credit card. Maybe you don’t have a credit history and need to establish credit, or maybe you filed bankruptcy and want to rebuild your score. And if you already have good credit, you might be thinking about getting a rewards card.
Now just because a credit card company rejects your application doesn’t mean that you can’t get a card. It’s all a matter of understanding why you were rejected, and then taking steps to fix the problem.
Here’s a look at five common reasons your credit card application was denied.
In the Article
1. You’re Applying for the Wrong Type of Cards
If you’re looking to get a credit card, you might think that any type of card will do. But the truth is, there are credit cards designed for specific people. If you have excellent credit and fit a credit card company’s criteria exactly, you might snag a low-rate card with amazing terms. But if you don’t have a credit history, or if you’re rebuilding your credit history after a foreclosure or bankruptcy, applying for a prime credit card isn’t going to work in your favor. In this case, you need a credit card designed specifically for people in your situation. This might include a secured credit card or credit cards that feature higher interest rates.
The next time you apply for a credit card, don’t pick a random card. Do your research and read the fine print to understand the requirements. If you apply for the right card based on your credit standing, you’re more likely to get approved.
What are your options? Consider a secured credit card offered by a credit union. They have some of the best terms and conditions. And you can also open a credit-builder account from companies like Self. They offer you non-traditional secured loans and a credit card without requiring a credit score. Learn more about Self credit builder loans here.
2. You Have Too Much Existing Debt
There’s nothing written in stone regarding how much credit is too much. But one thing’s for sure, if you apply for a new credit card and you have existing credit cards with high balances, there’s a good chance a credit card company will reject your application.
As a general rule, credit card balances should not exceed 30% of your credit line. So, if you have a credit card with a $1,000 credit limit, you should carry no more than a $300 balance. When applying for a new credit card, the company will check your credit and assess how much existing debt you have. And unfortunately, if you already have two or three credit cards that are maxed out or close to being maxed out, the credit card company will see you as a liability. The more you owe, the higher the risk of default. On the other hand, if you have five credit cards and you pay off balances in full each month, you’re less likely to default and it’ll be easier to get approved for a new card.
What are your options? Consider paying your balances in full each and every month. Don’t unnecessarily carry a balance. It’s a myth that you need to carry a balance for a better score.
3. You Have Too Many Recent Applications
If you don’t know much about credit scoring and how it works, you may not understand the danger of applying for too many credit cards in a short amount of time. Since credit card companies check credit reports before issuing new credit, they also know about your recent credit inquiries.
If the credit card company checks your credit report and sees that you’ve applied for five or six other credit cards within the past few months, they might reject your application because too many inquiries look like a desperate attempt to get credit. And from a creditor’s standpoint, if an applicant is desperately seeking credit, something might be wrong financially.
Even if you’re doing okay financially, most credit card companies won’t take a risk. To avoid this headache, only apply for credit when necessary, and spread out your applications — maybe one or two a year.
What are your options? Many creditors now offer soft credit pulls with no impact on your credit. You can utilize those options before completing a full application. Also, apps such as Credit Karma and Credit Sesame that offer free credit scores provide credit card recommendations and chance of approval based on your credit file and score.
4. You’re Too Young
If you’re 18 years old and ready to enter financial adulthood, getting a credit card might be the first item on your list of things to do. But unfortunately, credit card rules have changed since the Credit Card Act of 2009. And if you’re under the age of 21, most credit card companies now require a cosigner for credit cards. This helps prevent young adults from getting too much credit and acquiring debt before they’re ready.
What are your options? Contact a credit union about a secured credit card. And consider the Self credit builder program.
5. You’re a Job Hopper
When you apply for a credit card, the application will ask about your employment record. And sometimes, if you haven’t maintained steady employment for at least 1 to 2 years, a credit card company may reject your application until you can demonstrate stability.
Long-term job stability may seem like an unfair rule, especially if you’re currently working and have enough income. But you have to consider the credit card company’s viewpoint. If you’ve had periods of unemployment over the past year, or if you’re at a new job every few months, you might get into debt and then leave your job in the near future. Creditors don’t want to take this risk. Therefore, if you’re looking to get a credit card, you need to get a job and stick with the same employer for at least 1 to 2 years.
Whether you’re getting your first credit card or adding a new credit card to your collection, knowing what credit card companies expect from applicants is the best way to get your application approved. And if a credit card company denies your application, contact the company for an explanation. This way, you can make the needed improvements and reduce the risk of future rejections.