Credit Card Approval Insights

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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.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

All Comments

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1 Contribution
0 People Helped

When reviewing my credit report, how do I tell which are the "hard inquiries"? I would assume that it is the section that says "inquiries viewable/reported to others" but in this section I have three inquiries viewable by others. Credit Karma says that I have only two hard inquiries, so I want to make sure that I am reading my detailed credit report accurately.

Would the number of hard inquiries change depending on who I am obtaining my report from (i.e. Equifax vs Transunion vs Experian)?

They can since vary since each bureau has slightly different data. In addition not all lenders use all three bureaus for credit checks.

Review by
CK Moderator

Top Contributor

Reply by
tattoo666

13 Contributions
1 Person Helped

Here is what you look for for the "hard" inquiries.

On TransUnion it will be listed as "Regular Inquiries" and at times you will have some of these also show up under "Inquiry Analysis" These would be hard. Anything that falls under "Promotional Inquiries" will not effect score.

on Experian There are two headings. "Records of Request for You Credit History" and right below it there should be "Inquiries Shared With Others" These are the "hard" Anything under the "Inquiries Shared Only With You" do not effect score, again promotional stuff. On Equifax It should be under "Inquiries"

Now as far as all the promotional stuff, which most is to offer a pre approved credit card that is not actually pre approved and if you apply for it they turn into a hard hit, you can contact the credit bureaus and opt out. Also stops a lot of junk mail!

3 Contributions
0 People Helped

I'm a little confused and concerned.

It's noted in the article that if your percent of used credit is near max (that is you have nearly maxed out your credit) then issuers will see that as high risk. What confuses and concerns me is that CK lists my percent of credit used as 100%, but I don't have any credit cards. The math makes sense, but is that what the issuers see as well, is that I have maxed my credit out, even though there is no credit there?

Another thing that confused me. My wife and I have had a turbulent credit history in recent years due to a Bankruptcy and we had come to expect that, but about 8 months ago my wife applied for a credit card and got accepted, at the time my credit what higher then hers, by 20 or 30 points according to CK. about 2 or 3 weeks later I applied for the same card and got denied. I don't understand this as my wife had more accounts that went into the bankruptcy then I did and we have both been building our credit with a car loan, but she with a lower credit score got accepted and I got denied. She even put that she was unemployed, but obviously included my income in the household income! any insight into this would be greatly appreciated.

You are right. We will address the 100% utilization shortly. Thanks for bringing it to our attention.

Review by
CK Moderator

Reply by
Dozam

3 Contributions
0 People Helped

Is that the same thing that the credit card companies see or is that just a little bug in CKs user interface that gives that info?

This is our metric to help people understand credit. In this case, it might not be so helpful.

Reply by
CK Moderator

Reply by
fordman27

1 Contribution
0 People Helped

In the article you will see that the companies try different formulas. Something tells me that the formula they were trying at this particular time was a marketing formula. The average consumer today is a woman roughly middle-age. That would be my guess. My wife has a horribly lower score than me and she gets approved easier. Something tells me its a marketing strategy.

It is all about risk. Billions of dollars at stake.

Reply by
CK Moderator

Top Contributor

Reply by
tattoo666

13 Contributions
1 Person Helped

It may be that they see that she has money and no bills and you have money and pay all the bills. So companies look at your total income and the percentage that goes to paying monthy reaccuring bills. Getting a motgage would be the best example of the math they do at times to decide if you are approved or not.

1 Contribution
0 People Helped

After maybe four years or so of having an open credit line with Chase Mastercard and never having a late payment or any kind of deliquent activity, I absentmindedly went over my credit limit when my car got towed and I didn't have enough cash to cover it. My APR ended up increasing to 32% for one mishap! I had to opt-out. Why would they do that and is there anything I can do?

1 Contribution
0 People Helped

i have a credit score of 728 and i dont have any credit at all, how is this possible just curious? i just became a legal resident and obtain my social about a yr ago, but everything i apply for i get denied? please help

Reply by
waltusa

1 Contribution
0 People Helped

I am in the same boat? I Have an average Fico Score of 727 (credit karma of 758) and just recently got denied by AMEX with a very vague reason as to why i was rejected.. simply put i did not meet their eligibility criteria. I was applying to become the primary card holder for our business amex for our 5yr old business which i have been running in the US which has very good financials.. The card is only for 5K... very upsetting.. Can anyone tell me how to get a better answer to why Amex denied me?

How can you determine the exact reasons AMex reject you? This will be reported as a hard enquiry and not help my score

2 Contributions
1 Person Helped

Helpful to 1 out of 2 people

I have been trying to get a credit card and I have been denied every time because I filed Bankurpcty and I don't know how to clear my credit report to get a credit card now can you tell me how to get a credit card from any credit card company and to rise my credit score and to clear my credit report

Top Contributor

Reply by
JayRizzo

210 Contributions
353 People Helped
Helpful to 5 out of 5 people

I'm surprised you worked with someone to file Bankruptcy, but they failed to inform you how to build afterwards?!?  You'll need to start low and build your way back up... this WILL be a s-l-o-w process.  Starting with a secured credit card of about $200 and keep it for 1 year making small purchases around $50... try NOT to reach $100.  Pay it off in full each month to avoid interest charges.  This will show an excellent payment history as well as Low Utilization on your credit bureau report.  Other companies will take note of your progress... don't think they're systems are not watching your spending habits -- they are.  You'll start receiving offers in the mail.  As flattering as it may be, DO NOT start applying to everything that you get in the mail or you will fall right back in the same trap.  Be smart about it this time.  Look for no fees, low APR, 0% interest for x-months, low fee/interest Balance Transfers, Rewards, etc.  This time YOU take advantage. 

Reply by
toyota10

1 Contribution
2 People Helped
Helpful to 2 out of 2 people

go to capital one

1 Contribution
10 People Helped

Helpful to 10 out of 20 people

terrible website! puts up only positive fake comments.  your website advertised credit cards for certain credit scores. i was well qualified with a 763 score. it also said "instant" answer, but when i applied i was told id get answer in a week. its been 2 weeks and still no asnwer. what gives? i think my identity was stolen by you.  you also encouraged me to put a hard inquiry on my credit score. why do you do this? shame on you morons!

Top Contributor

Reply by
SonnyHoney54

48 Contributions
280 People Helped
Helpful to 7 out of 7 people

  Sometimes you need to call the financial institution if you do not receive the "instant" answer you were looking for.   Are you sure your credit report was hit with a hard inquiry?  Stop waiting around for their response...... be proactive!  How can it hurt and you just might get the card you were hoping for.

1 Contribution
0 People Helped

Don't waste your time on Credit Karma's recommendation it's a Rip Off. I did a Rip Off report on this company. They don't care if you apply and are denied this is a scam. You are better off with a snake charmer.

Credit Karma Team
Top Contributor
2949 Contributions
4620 People Helped
Helpful to 2 out of 2 people

Hi Yuco,

Sorry to hear about your frustration. We do our best to suggest only products that we think you will be approved for, but ultimately, the decision is up to the lender. They may take more into consideration than just your credit reports. 

1 Contribution
0 People Helped

First Progress is A very Good Credit Card, I say try it give lots of advandages for reporting. Also for A person who hate credit cards.My First in over 30 Years ijs

1 Contribution
0 People Helped

I really want to do whatever I can do to bring up my credit score.  Thank you for giving me this chance.

6 Contributions
26 People Helped

I got approved for a capital 1 secure card and my score went from 571 to 587. I got approved for a mid atlantic verve card but because of the 2 hard credit inquries in 3 weeks in went down to 565.

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