Why Card Applications Get Denied

Applying for a new credit card and being rejected can be disheartening, especially since it is not standard practice for companies to reveal the reasoning behind their decisions right away. Companies do send out letters of adverse action explaining denials, but it can be up to 10 days before you’ll know why your application did not get approved, which can leave you disappointed and confused. Let’s look at some of the common reasons for rejection.

Your Credit Needs Some Work
Your credit rating is a critical factor. Negative items on your report can have staying power; delinquencies from years ago can still influence your score today, although more recent late payments have a bigger impact on the lenders’ decisions. If you have accounts in collection, judgments against you, charge-offs in your history, or bankruptcy on your report, you will appear to be a less-than-ideal borrower, and many companies will be wary of dealing with you.

Your File is Wimpy
If you’re just starting out, you may find that it takes a little time to build up the type of history you need. It’s a catch-22 situation; creditors are hesitant to deal with you because you don’t have a lot of history, and you can’t build that history without getting credit. One fix for this situation is to take out a secured card with your bank or a major issuer. You’ll pay a deposit, typically in the amount that you want as your credit line. For example, if you deposit $500, your limit will be $500. These work just like traditional cards and help you to establish a history and build your score.

Too Many Inquiries
If you’ve been fishing for approvals, you may look desperate, which will hurt your chances of being approved. A large number of inquiries within a short timeframe can lead to denials. A better option is to choose a card that lets you see if you’re qualified before actually applying. Capital One and several other companies offer this capability, so take advantage of it.

Your Credit-to-Debt Ratio is Too High
If you run a large balance on existing cards, then your new applications are likely to be denied. Keeping your balances low demonstrates financial responsibility and management skills. Lenders want you to use only part of your available limit; if you use too much, max out existing accounts, or exceed their limits, then you will likely wind up with denials on new applications. Show that you’re a good steward by keeping your balances below 30 percent of what’s available to you. For example, if your available credit is $2,000 you should try not to allow more than $600 of that amount to remain on your balance each month.

Your Wallet is Flush Already
If you own many cards, then you may be turned down for that reason alone. While there’s no real determinant of how many translates to too many, having too many lines open at any one time increases your access to credit, which can be a negative indicator to some companies.

You Can’t Afford a New Card
Creditors have approvals and denials down to an exact science, including the factors that are necessary for a customer to be successful in repayment. If your income is less than the company’s low-end cutoff, they will reject your application. Unfortunately, there is no way to know what the baseline income requirements are for any particular deal. Some are higher than others.

Your Application Contains Errors
Sometimes the only holdup is simple human error. Maybe you entered one digit of your Social Security number incorrectly or made some other mistake that set off an alarm with the Company. Be sure to enter your address and other pertinent information exactly as it appears in your credit file so that the Company can match you to your file without issue. Recheck your entries before submission.

Not Enough Information
The Company may simply need additional information, such as a more detailed job history or verification of your identity, to process your application. Not everyone is approved instantly. You could receive a letter requesting verification of income or other information shortly after you submit your application.

Tips for Successful Applications
Rejection stings, but it is nothing personal. It’s all a numbers game to the bank, and you didn’t meet the particular demographic they’re trying to reach. To improve your odds of scoring the cards you want, try these steps:

Reduce your debt utilization ratio by using only the bare minimum of available credit each month.

Avoid switching employers so that you can position yourself as a stable borrower.

Keep your oldest accounts open. The older your history, the better, so don’t close accounts that you don’t use.

Pay your bills on time, every month.

Minimize new applications. You don’t want to look like you’re desperate.

Is It Worth Reapplying?
The short answer is a resounding “no.” Reapplying does not improve your chances of approval, and some banks only allow you to apply again after a certain time has elapsed, often 90 days. Remember that many inquiries in a short time span will damage your rating, so bide your time, have patience, and wait until the odds are more in your favor before you try again.

Do Your Research
Different cards are designed for different types of customers. If you know you have a limited credit history or some black marks on your score, do not apply for products intended for high net worth individuals. You’ll just be turned down and rack up damaging credit queries. Look around for products with modest limits and less stringent criteria, and don’t be afraid to start with a secured card. Credit doesn’t just happen; you have to build it. That means starting where you are and taking small steps forward, not trying to leap straight to the platinum category!