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.


All Comments
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My credit score is 679, open credit card utilization card grade is a C,my percent of on time payments grade is A, and hard inquires C. Can I apply for the credit cards you recommed without getting turned down?

Comment by
Isaac300

1 Contribution
0 People Helped

That score is right on the edge of many card approvals. Try Orchard Bank. Their application is a soft-pull pre-screen meaning it won't affect your score until you apply. The pre-screeen will tell you which card you qualify for.

Review by
CK Moderator

I found this in depth credit-watch information to be invaluable to say the least. Thank you so much...

Comment by
gmoney01

1 Contribution
0 People Helped

I have just started building my credit. It is average right now, but i want to get a credit card to help build it more without spending 200 dollars. Is that possible?

Comment by
britadams

1 Contribution
0 People Helped

It depends on your credit. If you have no past delinquencies, then getting an unsecured credit card is certainly possible. However if you have ruined your credit, then secured cards are often the best option.

Review by
CK Moderator

I Have a credit card that charges me $ 18.00 a month to keep open, even if i have $ 0 balance, but it is my oldest account and my credit history is short. What should I do about this card.

Comment by
wayne6372

6 Contributions
104 People Helped

If you have a high credit score, then it shouldn't matter. If you have a low one, then it is a decision you have to weigh. One option is apply for a new card before you cancel.

Review by
CK Moderator

I would apply for another card with low interest if you have a score over 700 you might get a better deal. It depends on how long you had this card. I assume you had it because your credit  score was low. So check out  your options before closing this account.  On time Credit payments make you score go up, and closing accounts makes it go down.

Top Contributor

Reply by
yoakum66

24 Contributions
10 People Helped

I have been trying to raise my credit score..I have a credit card that has been open for more then 2 yrs I also have a line of credit with my credit union and I have never been late on any of my payments I came close to maxing out the credit card once but since have nearly paid the balance. I also have had several loans with my credit union and have never been late on any payments, always paying ahead of schedule. My question is why is my credit score going down according to credit karma? 6 months ago my score was 630 on my credit report today I just checked on credit karma and it is at 603?? how is this possible?

Comment by
juanjon68

2 Contributions
0 People Helped

Where did you get your score 6 months ago? If you are looking specific advice, try credit report card.

Review by
CK Moderator

ok so i have several questions, ok so my credit score is 521 is that good or bad? i have applied for several department store credit cards and have been denied every time... its like everytime i apply for something i get denied...I dont have any outstanding bills or loans...i've never owned a credit card before...my income is $500 monthly but my husband's is $1000 monthly. so i dont know if my income is the problem or not. But when i do my husbands credit score it says he has a "thin file"...is that because all of our bills are in my name?.... Im trying to find a way to get approved for a credit card so i can inprove my credit score with out using a prepaid card...

Comment by
petrillasboo

1 Contribution
0 People Helped

531 is a poor score. Try Orchard Bank or Public Savings Bank. You will get approved for those but it may require a $200 deposit.

Review by
CK Moderator

I am not an expert, but a prepaid or "secured" credit card my be your only option at this point until you can build your credit up enough to be able to apply for an "unsecured" credit card.  Everytime you apply for credit, an "inquiry" is placed in your credit record. I believe with each inquiry, your score drops a few points. Too many or excessive inquiries can lower your credit score. These inquiries stay in your credit file for two years and after two years, then these inquiries will drop off your record. But the less inquiries you have, the better.

Credit is something that we have all heard of but know very little about. It is almost impossible to buy, rent, or reserve anything in this country without having good credit established. Credit is a sum of money made available to a person from a financial institution. When lenders open credit accounts for applicants, in exchange, interest is charged by the creditors on the money because the money has to be repaid over time.

Credit is based on a "scoring" system. This score is determined by the kind of information listed on the application. The credit issuing institution's computer uses software and awards a certain number of "points" for each item listed on the applicant's application. For instance, buying your home instead of renting will award the applicant more points.                                             

Each financial institution has what is known as a "cut off" point total. If the applicant's application scores beneath this number, then the bank will waste no more time on this application and a rejection letter will be sent out to the applicant at once. If the application scores above this number, the institution will order a credit report on the applicant from one or two credit bureaus. If no negative or derogatory information is found in the credit report, and the credit report matches what is written on the applicant's application, and the applicant's debt to income ratio is not too high, and the applicant does not have too many open accounts with high balances or excessive debt, then the application is approved, and the credit card is sent to the applicant by mail.

Reply by
kakiben

2 Contributions
0 People Helped

My very first credit card was a Bank Of America secured one. It automatically converted to an unsecured card after 24 months. I first started with $400 (which I had in a BOA savings account) and increased it several times to $2000 within those 24 months (yes, I had to have the $2000 in my savings account!). Now, about 8 years later that initially secured credit card (BOA VISA) is a BOA Platinum Visa (unsecured)with a $14,000 line of credit. I never asked BOA to increase the line of credit. They did that automatically (4K, 6K, 8K, 10K and then 14K).

Reply by
Vyger

6 Contributions
0 People Helped

As someone who has both (Orchard Bank & Public Savings Bank) secured cards, I recommend Orchard; PSB never converts to unsecured.

Reply by
jolla

8 Contributions
1 Person Helped

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?

Comment by
dianefield

1 Contribution
0 People Helped

Where you do you base the 50 point drop?

Review by
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?

Comment by
stevlevin

1 Contribution
0 People Helped

The length is most important aspect so just make sure you keep your old cards open.

Review by
CK Moderator

How do student loans figure into this? I'm $43,000 in debt due to student loans.

Comment by
violetfire09

2 Contributions
2 People Helped

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.

Review by
CK Moderator

i kno people with  $20,000 $30,000 or more  student loans and have high limit credit cards such as chase and other big brands with limits ranging from $5000 to $7500. and working only part time,making only $4000 to $6000 a year.myself on the other hand has no student loans,makes about $30,000 a year,credit scores of 754-758-and 737.and cant get approved for a high limit credit card just the losely ones that im about to cancle them all.i dont understand that logic.               Does sumone have an answer for that.

Top Contributor

Reply by
rawtune4

13 Contributions
4 People Helped

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?

Comment by
escoz

1 Contribution
0 People Helped

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.

Review by
CK Moderator

Helpful to 2 out of 2 people

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.

Top Contributor

Reply by
janiesuper

13 Contributions
25 People Helped

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.

Reply by
Vyger

6 Contributions
0 People Helped
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