With a long list of potential credit card issuers and dozens of offers to choose from, your chances of getting approved for a credit card are strong – IF YOU CHOOSE WISELY. So when your application is denied and you’re turned down for a new line of credit, it’s easy to become frustrated or concerned. Credit card issuers are required to tell you why, but not necessarily right away. In fact, an adverse action letter that explains the specific reason(s) your application was denied may not arrive in your mailbox for 7-10 days. If you’re looking for an answer now, there are some simple reasons your credit card application could have been denied – and actions you can take to remedy the situation.
8 Common Reasons for Being Denied
A credit card application can be denied for a variety of reasons, but the most common reason is your credit score. If you credit score falls within the issuers ‘acceptable’ range and you’re still denied, these are some of the possible reasons for your denial:
- Account Charge-Offs: Not only are charge-offs on your credit report an indication of poor money management, but unpaid accounts of six months or more are one of the most problematic issues for lenders. To see immediate improvements to your credit score and to increase your chance of future approvals, it’s vital to payoff your delinquent debts.
- Too Many Credit Inquiries: Regular requests to review your credit report will raise red flags for potential lenders. Mortgage and insurance companies, along with credit card companies and banks, all requesting to see your reports within a short period of time (1-2 months) may be an indicator of financial difficulties or trouble on the horizon.
- High Account Balances: High balances are never a good thing from the perspective of a credit card issuer or bank. If you’ve accumulated multiple credit accounts and carry large amounts of debt, issuers will be hesitant to issue you an additional line of credit. Approvals come much easier when you’re only using a small portion of your available credit limit(s). You also demonstrate your willingness to act responsibility when your accounts aren’t maxed out and you’re paying more than the minimum due each month.
- Co-Signer Required: Gone are the days when an 18- 20 year old could easily get a credit card. Thanks to the CARD Act of 2009, if you can’t prove that you have sufficient income to handle the payments and are under 21 years of age, you will be required to have a cosigner.
- Limited Credit History: With limited or no credit history, you offer no demonstrative example of your credit risk to potential lenders. If you haven’t borrowed in the past or have had no active accounts in the last six months, FICO can’t calculate a credit score; and without one, credit is seldom approved. This is another situation where a cosigner may be required. Or, you could consider one of the few offers available for people with limited credit.
- Employment or Income Concerns: Limited or erratic job history is another reason for a credit card application being denied, since it may indicate an irresponsible life style. Along with your employment history, lenders may also be concerned about a low paying job or limited income that may increase your chance of defaulting on the payment.
- Collections / Legal Issues: Recent collection, delinquencies and legal issues are part of the public record that lenders may review before approving an application. As time goes by, they have less impact; but recent activities of this nature are a sign that you don’t have enough income to cover your financial obligations.
- Application Mistakes: If you’re confident that none of these other issues apply, there may have been mistakes on the credit card application that triggered a rejection. Simply transposing inaccurate numbers for your household income could be reason enough to be denied. Another example: providing the wrong date of birth may have signified that a cosigner was required, even though you’re well over the age of 21 with an established credit history.
Although one of these factors may have ultimately resulted in your denial, it’s also possible that you choose an offer that you weren’t qualified for – or one with strict approval guidelines. If this was the case, it may be worth applying for another offer that’s better suited for your financial needs. Keep in mind that when you apply for another credit card, it will result in an additional credit inquiry, and you only have several days before the first inquiry will affect your second attempt. If you’re denied a second time, it’s definitely worth finding out why before you apply again.
Next Steps… After a Denial
Don’t accept no for an answer without a clear understanding about what went wrong and how to fix it. Along with an adverse action letter, banks are required to send a free credit score when your application is denied. You also have 60 days to request a free copy of your credit report. Review your credit report and score closely since they will give you a better idea about why you were rejected.
If the denial relates to your credit report, the adverse action letter will not specify which credit reporting agency was involved, so you may want to request your free copies from all three credit bureaus and examine each of them for inaccuracies. If you do find errors or discrepancies, begin the process of having corrections made by contacting the appropriate credit reporting agency. Once the information has been removed or corrected, a note can be added to the report indicate that an error had been resolved. You should ask the credit bureau to resend your report to anyone who has recently reviewed it and also request that the credit card issuer review your credit card application again.
Don’t jump too quickly to reapply for another credit card unless it’s absolutely necessary. Correcting potential issues can take a while, but if it’s an emergency and you need credit now, search for a card that’s designed for people with less than perfect credit. You may pay a higher rate of interest, but it’s a small price to pay if you must have access to funding. If you’re patient, eventually you can reapply for a card with lower rates and better terms, but correcting your credit issues won’t happen overnight.
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