Rejection hurts, even if it’s for a credit card. But if your credit card application was rejected, all is not lost.
“If you are declined for a credit card, it is important to know that it may not be the final word,” says Richard Best, owner of financial services consulting firm RT Best Consulting.
Reasons You Can Be Denied a Credit Card
If you’ve been denied for a credit card, it’s important to know why. Perhaps it was an issue on your end, or maybe it was simply due to an error. Once you narrow down the reason, you can take the right steps for a better outcome, says Leslie Tayne, a debt resolution attorney and founder and managing director of Tayne Law Group.
You probably know that if you have bad credit, you may not be approved for cards designed for good or excellent credit. But even if you have good credit, there are several reasons why your credit card application could be rejected.
High balances. If you’re carrying high balances on loans or other credit cards, you could be denied for another card. “If creditors see high balances, they may believe that you will not pay off this credit card,” says Tayne.
That’s because creditors look at your credit utilization ratio when evaluating your application. The ratio measures your total outstanding debt in relation to your total available credit. For example, if you have a credit card with a $1,000 limit and your balance is $500, your credit utilization ratio is 50 percent. Though there’s no one right number, it’s recommended that you maintain a ratio of less than 30 percent.
Too many credit cards or inquiries. Even if you maintain low balances, you could still be denied if you’ve opened too many accounts within a short period. The same goes for having applied for credit too many times, even if you weren’t approved, since too many hard inquiries can ding your credit. “Having too many open credit cards or credit inquiries is also a red flag for creditors. This tells them that you may rely too heavily on credit,” says Tayne.
Not everyone is impacted by credit inquiries in the same way. Though a single credit inquiry usually has a minimal — sometimes nonexistent — effect on your credit, someone with poor credit or no credit at all could be impacted more negatively than someone with a lengthy credit history and high credit score.
Low income. Income is a major factor in whether or not you’re approved for a credit card. The Credit Card Accountability Responsibility and Disclosure Act of 2009 requires credit card companies to verify that you earn enough income to afford a line of credit. Plus, your income has to come from approved sources, such as your job, a spouse’s wages or retirement distributions.
Your application will likely be rejected if your income is too low or you don’t have an income of your own, says Tayne. “However, creditors don’t publish their minimum income requirements,” she says.
Short credit history. Applying for credit can be a frustrating Catch-22. Often, in order to be approved for credit, you must already have it. “Not enough history is a risk for lenders, too,” Tayne says. In fact, it’s possible to have good credit but still not have enough credit history to be approved.
Recent delinquency. Missing payments on your bills is an easy way to kill your credit. Even one slip-up can have a significant impact, especially if it was recent. “Creditors not only look at whether you’ve been delinquent, but how recent your last delinquency was,” says Tayne. “The more recent a late payment, the more likely you will get denied.” And, of course, several missed payments that lead to default, collections or a charge-off are treated even more seriously.
According to Best, your credit report is screened for all of these factors when you submit a credit card application, and a computer algorithm makes an instant decision to approve or decline.
“Some factors, such as delinquent payments, charge-offs, number of credit cards and high credit utilization can be automatic disqualifiers,” says Best. “If you were declined for any of these reasons, you are not likely to be able to change the outcome.”
He notes that items such as delinquent payments and collections remain on your credit report for seven years. However, they carry less weight as time goes on; the more time that passes — say, after two years — the less likely it is that the negative item will get you denied.
If it’s not obvious why you were denied, you can find out with the adverse action notice.
Understanding Your Adverse Action Notice
Any time you are denied credit, the lender is usually required to supply you with an adverse action notice. Though it sounds sinister, this letter actually contains helpful information that can clue you in to why you were denied.
According to the Federal Trade Commission, the letter should contain a few key pieces of information. It will indicate which credit reporting agency supplied the credit report that was used by the lender to make its decision, along with the agency’s contact information. It will note that the credit bureau simply provided the information and was not involved in making the decision. If your credit score was used, the adverse action notice will list it. There should also be a statement explaining your right to obtain a free copy of the credit report that was used and to dispute any entries you believe to be incorrect.
Though the law doesn’t state exactly how soon creditors must send you this letter, Tayne says that you should typically receive the adverse action notice within seven to 10 business days. Sometimes, the letter is provided digitally.
How to Ask for a Reconsideration
Though the algorithms used to evaluate your credit card application are complex, computers don’t always get it right.
“If you would like a real human to reconsider your application for a more complete picture of your income or employment status, or to explain extenuating circumstances behind a missed payment, you can initiate the process of credit card reconsideration,” Best says.
Best notes that the opportunity to actually speak with someone can be advantageous, since you can appeal to their good nature and common sense. “However, it’s important to have your information for refuting or negotiating well prepared,” he says. For example, applying for an elite rewards card when you have a credit score in the 500s will get you nowhere. On the other hand, if a simple mistake or one-time slip-up might have gotten your application rejected, you might be able to convince the representative to approve it after all.
“It is also important to present your case honestly and politely,” says Best. Being courteous can mean the difference between a no and a yes. And if you aren’t successful the first time, call back. Sometimes all you need is to speak with the right person.
Note that Discover doesn’t do reconsideration of applications, according to customer service representatives, but here are major credit card issuers’ reconsideration lines:
— American Express: 877-399-3083
— Bank of America: 800-354-0401
— Barclays: 866-408-4064
— Capital One: 800-625-7866
— Chase: 888-270-2127
— Citi: 800-763-9795
— U.S. Bank: 800-685-7680
— Wells Fargo: 866-412-5956
Ensure You’re Approved Next Time
If you’re denied a credit card and don’t have any luck getting the issuer to reconsider your application, you can take steps to ensure that when you apply again, your approval odds are better.
The first step you should take is to request a copy of the credit report from the credit reporting agency listed in your adverse action notice and review it for errors. A reporting error could be the cause of your declined credit card application. If you do find an error, such as incorrect employment history or an account you don’t recognize, dispute the error by taking the steps outlined on the credit bureau’s website. When it’s corrected, you can reapply.
You’re entitled to a free copy of your credit report once a year from each of the three credit bureaus. You can request your free reports by visiting AnnualCreditReport.com, which is the only website federally authorized to provide this service.
If you were denied due to negative entries in your credit report, you’ll need to spend some time cleaning up your credit before applying for a card again. One of the most effective steps you can take is to pay down outstanding balances on your existing credit cards — ideally getting your credit utilization under 30 percent. Reducing your balances can positively impact your credit in as little as 30 days.
Also continue to pay your bills on time. Payment history is the most heavily weighted factor in calculating your credit score, accounting for 35 percent. If you make all of your payments on time and in full, you should see your score steadily tick upward.
In the meantime, if you need to get your hands on some type of credit, consider applying for a retail credit card. “Store credit cards are often easier to be approved for,” says Tayne. “However, be aware that store cards often come with very high interest rates, and having too many credit cards open will work against you.”
You can also consider a secured credit card. These cards, which tend to have lower credit limits, require you to place a deposit up front. “On-time payments on a secured card will help repair your credit and may lead the creditor to transfer you to an unsecured card after a certain period,” says Tayne.
However, once you’re denied a credit card, be cautious. Remember that too many credit inquiries will only work against you, so only apply for credit cards you’re fairly certain you qualify for. If you’re not sure, err on the side of caution and work on improving your credit before submitting another application.
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