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Each week, we receive dozens of comments on applying for loans and credit card. The most common question involves why a member was declined even though their credit score appeared high enough for approval based on the credit scores of other members who were approved recently. With so much confusion, we thought it would be helpful to dig into the data and answer the question in more detail.
The first thing consumers should understand is that the underwriting process, the rules that determine whether a consumer gets approved or declined for a credit card, is the secret sauce of credit card companies that determines the profitability of each cardholder, the credit card portfolio, and in many cases the entire business. The underwriting process is responsible for the amount of risk credit card companies take on and how well they can predict the performance of consumers they approve to become cardholders. A difference of a 5% customer charge-off rate to a 10% customer charge off rate in a credit card portfolio can be worth hundreds of millions of dollars to the credit card issuers. As such, you can imagine lots of money is spent refining the logic of the underwriting process, testing new logic, and protecting that logic from competitors.
With so much to gain and so much to lose for credit card companies, it’s easy to understand that a credit score alone is not sufficient to determine approval or declines for credit cards. So, what other factors are used to determine which consumers will be approved and which will be declined? To answer that question, we spoke to an anonymous credit card statistician who has built these formulas for the past 15 years. He shared there are 6 other leading factors, in addition to credit score, that will determine a consumers likelihood to be approved for a credit card.
This list isn’t intended to be inclusive of all the decisioning criteria as the process and models can be quite complicated. Instead we hope the list sheds some light on the other components that go into approving consumer’s loan or credit card applications.
When you see the Credit Karma credit card approval score data also consider how lenders will view you across these metrics as well before you apply. If you barely make the average credit score for approvals, consider applying for a card with a lower credit score requirement. We hope this article helps shed more light on the credit approval engine.
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Good Article.
teddyrowe 10 months ago
Good Article.
devadg 10 months ago
Good and helpful article
welton4 10 months ago
What still doesn't make sense is how a person would get a high credit score if they're considered insufficient in these six factors. Aren't these the six factors that are also very important in determining credit score?
bprice 10 months ago
Good question. Answer is that you can still have a high credit score with these factors. For example, having a 720+ is possible with a few 30 day delinquencies or 2-3 recent inquires. As proof, you read plenty of declined comments from people with good credit scores on various card offers.
CK Moderator
Maybe I am slow, but I am still confused how not having a present mortgage is detrimental. I paid off my mortgage, and yet it is constantly cited that my score is lowered because I don't have a mortgage.
cat333 9 months ago
It is not so much that your score is lowered. It is more the case that statistics show that people with mortgages are less likely to default on their credit card payments than those without, all else equal. Because the data shows this relationship, some credit card make take this factor into account for people with credit scores on the margin. Hope that helps.
CK Moderator
GREAT WEBSITE-VERY HELPFUL
ROBERTOB 9 months ago
The one thing that amazes me is how income doesn't seem to be a factor in the credit score. So if one person have a 1k credit card used up to 500 dollars, and my income is 100k, those 50% are almost nothing.
For another person with a 20k income, those 500 dollars means a lot, but, by the rules mentioned, they both would get the same grade. Is that correct?
escoz 9 months ago
You could argue it is not fair to take income into account. Credit scores are a reflection of your ability to pay debt as agreed. That metric of responsibility should be independent of how much you make.
CK Moderator
That is even more true when considering the utilization ratio of your current line of credit.
If I make $200K a year and I am happy with just 2 or 3 credit cards with a total line of credit of lets say $20K I am getting 'punished' because I only have a small number of accounts and I have a high utilization ratio.
Plus, even if I pay the balance off each month it shows the high utilization.
I have started paying my cards BEFORE the monthly cut off day so that they won't show the high utilization any more.
And to argue with the CK moderator: Yes, the metric of responsibility should be independent of how much money I make. However, the amount of total debt should be put into relation with my income (regardless how many - or few - total accounts I have).
I would also argue that a credit score should get a hit if someone with a significant amount of outstanding debt suddenly makes 25% less a year.
Vyger 8 months ago
yeah, i think it wouldnt be fair to take salary into account because you would be letting the credit card company judge how you lay out your monthly budget. Unfortunately (or fortunately) when you apply for a mortgage they do look at your monthly budget. I think if credit cards banks are not taking income into account, then they shouldnt be closing my accounts simply because my debt is too high. This causes my score to snowball downward as other cards react. I have an excellent track record even considering juggling 10 accounts with balances. Also, they dont seem to care that all my balances are decreasing over time. Well they are losing my good business.
janiesuper 7 months ago
How do student loans figure into this? I'm $43,000 in debt due to student loans.
violetfire09 9 months ago
Other debt like student loans, can affect your DTI. If you have a high monthly debt load and low income, you may get declined regardless of your credit.
CK Moderator
I have lots of credit cards, including many recent ones that I got only for an introductory 0% APR offer. These offers are now over, and I don't need the cards. Further, most banks will no longer roll over the unused credit to another card from the same bank. As a result, the average age of my credit cards is low (about 3.5 years). (a) Would my score improve by actually closing some of the newest accounts, or is the average (mean) less important than just keeping the oldest ones open? (b) Is it important to actually USE the oldest cards - to show activity - and if so, how much?
stevlevin 9 months ago
The length is most important aspect so just make sure you keep your old cards open.
CK Moderator
I was going to pay off my mortgage soon and mort means death and gage means gripo so I think I'll pay off my death grip but it is too bad my score may go from 744 to what 694 because I have no mortgage?
dianefield 9 months ago
Where you do you base the 50 point drop?
CK Moderator