In this era of instant-approval credit card offers, it's easy to overlook the rule that a bank must supply you with a specific reason for declining your application in writing. You'll probably receive a letter from them in a plain envelope that most people might mistake for junk mail. However, based on what you've told me, there could be a few reasons why they might have turned you down:

  • Income. Under federal guidelines, banks must calculate your credit limit based on your ability to repay your entire balance from monthly income. With only $1,000 per month coming in the door, there's not much room for a significant credit limit. Even though your existing credit union credit card is probably helping lift your FICO score, it's going to be hard to convince a lender to extend your available credit.
  • Credit utilization. You didn't mention whether you're carrying a balance on your credit union account, but that could play a role in an issuer's decision. Even though you make payments on time, carrying a balance as large as 30 percent of your available limit could cause some banks to reject you as a candidate.
  • Diversity of lenders. If your credit union account is the only line of credit that prospective issuers see on your credit report, you've got what they call a "thin file." Credit unions, by their nature, can often afford to take a little more of a risk on members who manage share accounts (their version of savings accounts) at the same institution.

All that said, you can take some steps to make yourself a less risky candidate for a retail credit card:

  • Open a secured credit card with another lender. If you can afford to stash as little as $200 in a savings account for a year or two, you can get another major credit card that reports to all three credit bureaus.
  • Pay down any existing balances. Keep your credit utilization as low as possible to assure potential lenders that you're not in danger of getting in over your head.
  • Increase your reported income. Whether you work some extra hours, qualify for an annual bonus, or open up an Etsy store, you'll need to find a way to bring in just a little more cash each year to make a bank feel good about extending you credit.

Remember, at this point in your financial journey, you're just trying to build a credit profile to help you qualify for better mortgage rates, cheaper insurance, and stronger loyalty rewards. Avoid opening retail credit cards if you just intend to spend.

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