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.

All Comments

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6 Contributions
0 People Helped

Credit card companies do give second chances I had a capital one card when i was 20, i was approved for 300 and got it up to 700. I paid on it for over 2 years then got laid off from my job during the recession and couldnt pay for it. Im 29 now and just applied back in april for the cap one journey card and got approved instantly for $3000.00! My old cap one account was and still is on my credit report when i got approved, its due to come off my credit in a year which is good. I was so greatful cap one gave me another chance ive been paying it every month 2 to 3 weeks early. i made a mistake but it wont happen again...rebuilding my credit feels great and iam also disputing a bunch of medical bills that equal $17,000 that were suppose to be billed to my insurance which never happened and were sent to collections so fast it wasnt funny. Im disputing it all on my own and now im jus waiting for the 30 days they have to make a decision. i had all the proper documents to prove it. So hopefully they will be taken off my report, it would be great.

2 Contributions
8 People Helped

Helpful to 1 out of 2 people

Because I'm the owner of my company (10+ employees & $2,250,000 Annual Revenue) I'm considered "self-employed" regardless of all factors.  This confuses and seems unfair to me; plus find it hard to believe that Bill Gates (poor example since Microsoft is publicly traded, stockholder owned actually) or similar, wealthy CEO's that own 100% of their company would be treated this way.  This fact causes me much more difficulty when applying for credit/loans and also appears to be "worst of both worlds" when company debt (disputed or even non-legit) is counted against me but company profits, revenue and especially the big one "ability to pay" is NEVER used in my favor by banks, credit card companies, etc.  Am I correct in what I say? Or, is there a way to be considered a regular employee, which I am...weekly paid, 1040 & Taxes/Witholding handled just like non-owner employees) when applying for credit?  Are there legal protections for me regarding this mistreatment AND/OR if I'm denied based on false information on my credit reports?

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
319 People Helped
Helpful to 3 out of 3 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
235 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.

2 Contributions
0 People Helped

When I bought my home, I had a mortgage rate of 8%. When it dropped to 7%, I refinanced, when it dropped to 6%, I refinanced. When it dropped to 5% I refinanced. It appears that doing this has had a negative effect on my credit rating as my average length of account time is significantly shorter than it should be. Is this accurate. Does refinancing a home loan reduce your average length of account time, and thus, negatively impact your credit rating?

1 Contribution
0 People Helped

Do we get new credit score every month or year?

As often as you want up to once per day.

Review by
CK Moderator

1 Contribution
0 People Helped

According to Credit Karma my score is 683. I have one credit card with a 170.balance. I have not been late on any payments and usually pay off the balance each month. I have not applied for a loan in nearly two years when I purchased a car. I recently applied for a loan at the bank where I do my banking and was told my credit score was 550. Why go to the trouble of tracking my score here or any where when it is so misleading?

An individual may have many different credit scores depending on what the inquiry is for. Mortgages and loans usually require a different scoring model than credit card approvals.

Review by
CK Moderator

Reply by
mauscoman

2 Contributions
15 People Helped
Helpful to 1 out of 1 people

It's too complicated for me to get in to all the details here - for brevity purposes, read this: your credit score is a combo platter of the major "BIG THREE" reported scores (your FICO score varies from report to report based on the fact - one of many facts - that the company reporting gets to choose the credit bureau(s) of their choice to report to). Once these three scores are added together, the average of the three scores reveals your actual score. Also, or on the other hand, your FICO score (reflected in CREDIT KARMAS'S records) is the larger of the three scores.

This may or may not be totally accurate - my synopsis, that is. You can email CREDIT KARMA for their version of the "facts" above, or better yet, GOOGLE the words THE CLARK HOWARD SHOW, go to his website and SIGN UP for "THEE" consumer's best ally in the world of consumer credit, protection from fraudulent activity in business, etcetera. You would do well to absorb much of this family man's 30+ year consumer advocate experience, which he utilizes to host his daily radio program in many markets.

2 Contributions
0 People Helped

I begin to use credit card last September, and because I paid all my balance on time, my credit score increase to 911 last month, however, this month it decrease into 694, I do not the reason, because I still pay my debt on time.

Reply by
hotstoneli

2 Contributions
0 People Helped

sorry last month my score increase into 711

1 Contribution
0 People Helped

My credit score is 703.I have 19% of my credit used. I am 99.67% on time,But my average years of cards is 3. Total accts is 17 with 7 open. Should I close newer accts that i dont use, to increase my score?

You should close accounts if you don't use them and if you feel that the fees are high. If they are good cards with good rates, you should use them for minimal monthly purchases so that they will actually help your credit score.

Review by
CK Moderator

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

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