From lucrative rewards to 0% APR offers, there are many reasons why you might want a new credit card, but credit card issuers don't hand out cards to just anyone. If you apply for the wrong credit card or at the wrong time, you could find your credit card application denied.
Companies want to be sure you are going to be able to pay back what you owe. They also have to follow federal rules and may have internal policies in place that guide their decisions.
Getting your credit application denied can be discouraging, but it doesn't mean you don't have options. Keep reading to learn more about why denials occur and what to do about it if it does.
Why am I not getting approved for a credit card?
Before you do anything else, you need to be able to answer the following question: Why was my credit card applicated denied?
By law, card issuers are required to send a letter to anyone who has had their credit card application denied. Known as an adverse action letter, it can arrive electronically or through the mail, and it should include the reasons for the denial.
Here's a look at why someone may be declined for a credit card:
- Credit score: Many cards have credit score requirements, and top tier cards may only approve those with excellent credit scores that are at or above 800. Factors such as timely payments, credit utilization and hard inquires can all affect your credit score.
- Income: You may end up with a denied credit card application if you don't have sufficient income. Under federal guidelines, banks must calculate your credit limit based on your ability to repay your entire balance from monthly income.
- Age: Federal rules also limits the ability of those younger than age 21 from getting a credit card unless they have a co-signer or can demonstrate they have an independent source of "adequate income."
- Excessive credit: You may be declined for credit card accounts if an issuer believes you already have access to too much credit. They may be concerned that you won't be able to pay back all your debt if you max out your existing cards, or there may be internal rules that they follow. For example, Chase reportedly has a 5/24 rule which means the company won't approve a credit card application for anyone who's opened five or more accounts, across all banks, within the preceding 24-month period.
What happens if my credit card application is rejected?
As mentioned earlier, you will receive an adverse action letter stating the reason for the denial.
But you may also be wondering: does a denied credit card application hurt credit score numbers? The answer to that is that it could.
When you apply for a credit card, the issuer pulls your credit report in what is known as a hard inquiry. These inquiries can temporarily drop your credit score by a few points for up to a year. After two years, they drop off your credit report.
Beyond that, a credit card application denial shouldn't affect your credit. For instance, your credit report doesn't list rejected applications.
How to get approved for a credit card
To improve your chances of approval, make sure you are following these guidelines:
- Apply for the right card: If your credit is only fair or good, don't apply for a card that is marketed to those with excellent credit. Some card issuers, such as Capital One, clearly state the credit requirements for their cards. For others, check our credit card reviews for more information.
- Be selective with applications: Keep in mind company policies such as Chase's 5/24 rule and limit your applications only to the accounts you really want. Otherwise, you could end up with a wallet full of so-so cards and have your credit application denied for the account with the really great rewards.
- Improve your credit score: The better your credit score, the more likely you are to be approved. You can boost your score by making timely payments, paying down debt and keeping your credit utilization ratio low - that is, keep your balances below 30% of your overall available credit.
Next steps after getting denied for a credit card
If your credit card application is denied, you should take the following steps before applying again:
- Read the adverse action letter: Watch for this letter to see what reason the company gives for the denial.
- Appeal the decision: Most card issuers have reconsideration lines that allow people to call and appeal a denial. In many cases, the initial decision is made by an automated process, and the reconsideration line lets you plead your case for approval to a human representative.
- Check your credit report: If the denial is based on your creditworthiness, request a copy of your credit report and check for errors. By law, everyone is entitled to an annual free credit report from each of the three major credit reporting companies. These can be requested through the government authorized website AnnualCreditReport.com.
- Research your other options: Assuming your appeal is denied and your credit report is correct, it may be time to consider other options to gain credit. If your credit score is quite low, for instance, you may need to start with a secured credit card or become an authorized user on someone else's account before you'll be approved for your own unsecured card.
You should also focus on ways to improve your creditworthiness. These could include creating a debt repayment plan or looking for ways to increase income. A side gig that brings in extra money could have a dual benefit of providing cash to pay down debt while also increasing income so it meets card issuer requirements.
Above all, have a plan for which cards you want and how you plan to use them. Applying for every card you see could reduce your chances of being approved for the cards you really want. Be selective and once approved, pay off your balance every month to keep your credit score high.
A credit card application denial can be disappointing but following these tips can help ensure your next application results in that magic word: approved.