Why Your Credit Card Application Was Denied and How to Fix It

application denied

By Michelle L. Black

Credit cards can be a helpful way to build or rebuild your credit history — at least when you manage the accounts well. Yet before you can use a new credit card to establish credit, you first need to qualify for an account.

According to the CFPB, around 170 million Americans carry credit cards (some more than one account). But when you’re struggling with credit problems or you haven’t built credit before, qualifying for a new credit card may be tricky.

Apply for the wrong card or fail to prepare your credit reports at the credit bureaus in advance, and the creditor could deny your application. If you’ve already experienced this frustrating problem, it helps to understand why you were turned down.

Most of all, you need to identify ways to fix the problem. Otherwise, you risk facing more credit card denials in the future.

In this article:

  • Why are credit card applications denied in general
  • Why did your credit card application get denied specifically?
  • How can you approve your chances of approval before you re-apply?

Why are credit card applications denied?

Credit card companies want more customers. They offer sign up bonuses, 0% balance transfers, free services, and countless other perks — all in the name of customer acquisition. Card issuers spend billions of dollars each year on marketing to add new cardholders to their ranks.

The more customers a credit card issuer has, the more profit it potentially stands to make.

With all this effort to attract new customers, you may wonder why card issuers sometimes deny credit card applications. The reason is simple – issuing banks want specific types of customers.

Most card issuers want to do business with people who are likely to repay the money they borrow as agreed. High-risk customers equal less potential profit.

Potential application problems

There are numerous ways card issuers measure the risk of doing business with you when you apply for a new account. Evaluating your credit report and score is, of course, important. But issuing banks consider more than just your credit when you apply for a new card. It’s entirely possible to have a good credit score and still get turned down for a credit card.

Below are three potential problems that might cause your credit card application to be denied.

1 - Your credit doesn’t satisfy the bank’s standards.

Banks rely on credit scores to help them predict whether you’re likely to pay your bills as agreed. A FICO Score shows the likelihood that you’ll pay a credit obligation 90 days late (or more) within the next 24 months.

Each credit card issuer decides the minimum credit score you need to qualify for a new account. Credit score requirements vary from issuer to issuer and between account types as well.

For example, you might need a minimum FICO Score of 720 to qualify for a premium travel rewards card from ABC Bank. The same bank, however, might offer a secured credit card with no minimum credit score requirement at all.

2 - You owe too much debt.

Card issuers are also concerned with the amount of debt you owe, and how that debt relates to the income you earn. This relationship between what you owe and what you earn is known as your debt-to-income ratio or DTI.

When you fill out a credit card application, you’re required to disclose your income as part of the process. If the income you claim is low compared with the amount of debt that appears on your credit report, your DTI may be high.

A high DTI ratio could indicate that you’ll have trouble keeping up with payments on any new debt. As a result, your credit card application might be denied.

3 - You’ve applied for (or opened) too many credit cards recently.

Some credit card issuers place restrictions on the number of credit cards (or credit card applications) that appear on your credit report. Card issuers added these restrictions to reduce risk and discourage the practice of credit card churning. (Churning is the process of opening multiple credit cards in a short timeframe to chase rewards and sign up bonuses.)

Chase, for example, has an unofficial policy known as 5/24. If you’ve opened more than five Chase cards within the past 24 months, your application for a new account may be denied.

American Express reportedly limits the total number of Amex credit cards you can have in your name to five at a time.

Discovering why your credit card application was denied

When a card issuer denies your credit card application, federal law requires the bank to give you specific reasons for the denial. The card issuer will mail this explanation to you in what’s known as an adverse action letter.

In an adverse action letter, the card issuer will break down:

  • Why you were denied a credit card
  • Which credit score it used to evaluate your application
  • The top four or five reasons your credit score wasn’t higher (AKA reason codes)

Knowing why your credit card application was denied can be valuable information. You can use it to fix the problems and improve your approval odds for the future. But there’s a catch.

An adverse action notice is a form letter. Sure, there’s a customized section with your specific information, but the letters are often unclear and a little hard to decipher.

The information you receive in an adverse action letter may help you. Still, you’ll probably need to do more research before you can try to fix the issues that triggered your credit card denial in the first place.

Improve your chances of approval before you re-apply

You may have heard that getting denied for a credit card hurts your credit scores. That is, thankfully, untrue. Yet frequent applications for new credit, whether they’re approved or denied, could be a problem.

When a lender checks your credit report as part of an application for financing, it’s known as a hard credit inquiry. A hard inquiry could potentially impact your credit scores in a negative way.

For this reason, it’s smart to improve your chances of credit approval before you start filling out applications for new credit. Here are three steps you can take to boost your odds of a credit card approval.

1. Make sure your credit reports are accurate.

You can claim free credit reports from Equifax, TransUnion, and Experian once every 12 months at AnnualCreditReport.com. If you discover errors on your reports, the Fair Credit Reporting Act gives you the right to dispute them.

It may also help to check your credit scores online, so you know the types of credit cards you’re likely to qualify for later, or can work to improve your credit before applying.

2. Apply for appropriate credit cards.

Pay attention to card issuer requirements when you’re shopping for new credit cards. For example, if you have bad credit, you should avoid applying for accounts that require good or excellent credit history to qualify.

Secured credit cards may be a good fit if you’re currently struggling with credit problems or you’re building credit for the first time. Just note that these cards require a security deposit to open.

If you’re not able to qualify for either a secured credit card or other credit card, consider being added as an authorized user on someone else’s card first, or building credit in other ways before re-applying.

3. Claim all income sources.

A 2013 amendment to the CARD Act lets you include all household income on credit card applications. But you must have “reasonable expectation of access” to the funds to include them in your application.

After you’re approved

Once you qualify for a credit card, it’s essential to use your new account wisely. If you manage your credit card well, it could help you to build a better credit rating for the future. Better credit can open the door to easier approval for future loans and credit cards, along with better rates and terms.

On-time payments are key when it comes to any account that appears on your credit report.

Yet it’s also important to pay attention to your credit card balance-to-limit ratio (AKA your credit utilization) as well.

Be sure to pay your credit card balances off in full each month. Your credit scores — not to mention your wallet — should benefit in the long run.

About the author

Michelle L. Black is a leading credit expert with over 17 years of experience in the credit industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting and debt eradication.

Written on January 2, 2020

Self is a venture-backed startup that helps people build credit and savings.
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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