Credit Card Approval Insights

Credit Card Approval Insights

Each week, we receive dozens of questions about 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 approvals 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 consumer's likelihood to be approved for a credit card.

  • Credit Card Utilization. Just like with your credit score, the amount of available credit you use can have an impact on your credit card approval. Simply put, if your existing credit cards are maxed out, you may be more risky than someone who has the same exact credit score who is not maxed out.
  • Recent Hard Inquiries. In many respects, you can think of recent inquiries as a sign of desperation which we can all agree is probably a bad risk for any lender to take on. If you have several recent inquiries, it suggests that you either didn't get the credit you requested (denied, a negative factor) or you did get the credit and it wasn't enough to meet your needs (another negative factor).
  • Age of Oldest Trade. The ability to maintain accounts in good standing speaks volumes about the borrower. Lenders like to see a long history of open accounts, which in many cases means more than 2 or 3 years. While you can argue 2-3 years is a strong indicator of creditworthiness, it is still a short time frame from a lender's point of view. In those 2 or 3 years, you probably haven't been laid off, gone through a recession, or experienced many major life events. On the other hand, if you have 10 years of credit history and maintained your accounts, it says a lot about your level of responsibility and financial management. On a side note, if a consumer has few accounts or a very short length of credit history, it is often called a "thin file."
  • Number of 30-Day Delinquencies. Fool me once, shame on you, fool me twice, shame on me. That, in many ways, is how lenders feel about delinquencies. If you have a habit of paying late regardless of your score, be prepared to suffer the consequences when it comes to credit approval. Delinquencies, even minor ones, are a red flag for lenders. That is why you should ALWAYS pay bills on time.
  • Presence of a Mortgage. Owning a home can actually help you when it comes to underwriting. Mortgages denote stability and suggest that your credit is strong enough to support a high dollar loan. This metric is often a tie-breaker type criterion, so don't get a mortgage just to improve your underwriting probability.
  • Presence of an Installment Loan. Just like a mortgage, installment loans demonstrate the breadth of experience you have with accessing and managing credit. Often, experience with more than just credit cards is seen as beneficial in the eyes of a lender. Installment loans show a level of planning not displayed in credit cards since installment loans have a fixed monthly payment which often require more discipline and budgeting, both of which are often a plus.

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 consumers' loans and/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.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

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1 Contribution
95 People Helped

Helpful to 95 out of 105 people

Two of my hard  iquiries are from applying for Credit Karma's recommendations. It makes me leary of applying for anymore of them.

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48 Contributions
250 People Helped

Helpful to 30 out of 35 people

         You wrote about the”6 other leading factors", how about giving some insight into past credit history with a financial institution.      If someone had a credit card 10 years ago and defaulted on the card, will a card issuer give someone a second chance?  The negative information is no longer on the credit report but how harshly is a credit card company going to hold the past debt against you? (I would think they would have a very long memory when it comes to who defaulted on then)  Does a person have any hope of getting a second chance?  Can a credit card issuer legally hold 10 year old negative information against you?

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1 Contribution
14 People Helped
Helpful to 14 out of 20 people

Enter Your ReplyI file bankruptcy chapter 7 back into thousand 11 I filed on capital one on two cards a year ago I was approved for capital one card with a $4000 limitit was a quick silver MasterCard when I recently went to apply for a quick silver visa I was denied and told that because I file bankruptcy I would not be approved however the lady did tell me the reason why is because it's harder to get a visa then it is a MasterCard and MasterCard is ran by a different department then the visa. So to answer your question yes if you filed on the credit card you can get approved again to me the master code seem a lot easier to get no matter what and my capital one MasterCard was at 0% for one year with cashback the great card I love it you might give it a shot. 

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26 Contributions
58 People Helped
Helpful to 13 out of 16 people

Credit issuers often give second chances. i got one with exxon, discover, citi, and chase.

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2 Contributions
13 People Helped
Helpful to 12 out of 15 people

I know you submitted your question a while ago but, I defaulted with CapOne and they charged it off. That was over 7yrs ago. Now I have three CapOne cards, so yes they do forget!

4 Contributions
39 People Helped

Helpful to 19 out of 21 people

KrisKris89, there's no specific number of cards that you should or shouldn't have. The number of cards you have are far less important than how you use the cards you do have.

I would very strongly suggest that you don't close any of your credit card accounts, as others have suggested. This would ultimately hurt your score, significantly. Any credit card account you close will automatically lower your total credit limit, which will raise your utilization rate, and consequently lower your credit score. Even if you have cards that you don't use very much, keep them open and continue to use them every now and then for small purchases.

Also, do not get rid of your store/retail cards. With responsible use, they are just as useful in helping to improve your score as any other card would.

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88 Contributions
401 People Helped
Helpful to 12 out of 12 people

Unless the card is issued by First Premier in which case paying exhorbitant fees makes no sense just to keep the card active on your credit file...

2 Contributions
83 People Helped

Helpful to 5 out of 6 people

My credit is undergoing some major disputes and I think I should wait until the reports and scores are corrected. Do you agree? Credit card companies only look at the negative submissions and do not take into account that they may be incorrect. Agreed?

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