What to Do If Your Credit Card Application is Denied
If you need cash, one of the quickest ways to get funds in your hands is by applying for a shiny, new credit card. But what if your credit card application is denied?
Here, we discuss the steps you should take after a credit card application denial if you want to secure credit in the future.
1. Find Out Why You Were Denied
The first step after a denial is to determine why you were denied the credit card. A credit card issuer will usually send something called an “adverse action notice,” either by snail mail or email, within ten business days or so of a denial. This notice will explain which credit reporting agency the issuer used to pull your credit report and give a reason why you were denied the credit.
Some common reasons for denial include:
- Low Credit Score: some issuers have a cut-off number that they will not deviate from. If your credit score is lower than the required number, they will automatically deny your application.
- Missed Payments, Delinquencies, or Charge-Offs: any negative marks on your credit report, especially recent ones, could signal to the issuer that you are not a reliable borrower. Not to mention, it can lead to other problems, like credit card debt lawsuits.
- High balance/High Utilization Ratio: a high balance or high utilization ratio on your existing debt suggests that you might have a hard time paying off the additional debt, so issuers may decide you are too risky to lend to.
- Multiple Open Cards: if you already have multiple accounts open, issuers may be wary of issuing a new one. They may wonder why you need an additional card and whether you will be able to manage so much credit.
- Low Income: every issuer has a different standard for what it considers low income, but if you do not have a high salary or other approved source of income, issuers may reject your application.
- No Credit History: if you have never applied for or received a credit card before, an issuer might not want to take the chance on you.
2. Call the Credit Card Issuer’s Reconsideration Line
Armed with why you were denied, you will be able to decide the best next step. One of these next steps is usually to call the credit card issuer’s reconsideration line. Most credit card decisions are made by a complex algorithm, taking into account your credit report, income, and more. Sometimes all it takes is a conversation with a person to explain your situation. For example, by discussing your situation with a representative (a real human!), you can explain why you missed a payment, and they may decide to reconsider your application.
While this tactic will not always work, as some issuers have hard cut-offs that cannot be changed, there is some wiggle room, depending on the reason for denial. It never hurts to ask, and at the very least you might gain some more insight from the representative as to what the issuer’s exact criteria are so you know for the future.
3. Apply for a Card With a Different Issuer
All credit card issuers have slightly different criteria when it comes to determining who qualifies for their cards. Just because you were not eligible for a card from one bank does not mean that you will be denied a credit card from all banks. For example, if your credit score made you ineligible for one card, that same score might be just fine for another card.
It is generally not advisable to apply for too many cards at once or in quick succession, since every time you apply the issuer will run a hard inquiry. These hard inquiries will show up on your credit report and lower your score (albeit slightly). That being said, it is usually OK to apply for a second card after being denied one, just be wary of applying for too many.
4. Seek Other Sources of Credit
If you were unsuccessful in getting your card reconsidered and did not have any luck with another traditional issuer, consider other sources of credit, such as a retail credit card or a secured credit card.
- Retail Credit Cards: store credit cards are generally easier to be approved for than traditional credit cards. They also usually have lower credit limits and higher interest rates, so while this is an option, be wary about how much money you can spend with the card and how much of a balance you carry.
- Secured Credit Cards: with these cards, you make a security deposit against the card’s credit limit. The deposit is placed into an account used by the issuer if you default on a credit card payment. This requires you to place money down, but it does give you the opportunity to use credit, and some cards even allow you to convert to an unsecured card after a certain period of making on-time payments.
5. Work to Improve Your Credit to Increase Your Chances of Approval Next Time
Whether the issuer reconsidered your application, you received credit from another source, or you are still looking for credit, the most important step to take after a credit card application has been denied is to improve your credit. By improving your credit, you will greatly increase your chances of approval the next time you apply for a credit card. Some ways to improve your credit include:
- Lower Your Utilization Ratio: pay down your existing credit card balances, aiming for a utilization ratio of 30% or lower.
- Make On-time Payments: continue to pay all of your bills on time, no matter what. Payment history accounts for about 35% of your credit score, so doing this one thing can significantly improve your score.
- Be Patient: building or rebuilding your credit score takes time, but if you are patient and consistent, the next time you apply for a credit card, you will likely be approved.
A Credit Card Denial Is Not the End of the Road.
If your credit card application is denied, do not assume that you are out of options. There are numerous ways for you to build up your creditworthiness, whether through paying down your debt or exploring the best credit card consolidation options for you given your particular financial situation. If you follow these concrete steps and improve your credit history over time, you will surely find yourself on the other end of the spectrum the next time you apply for a credit card.