Being rejected is never fun. Whether your crush politely declined your invitation to prom, you never heard back from that dream job you applied to or you were flat-out rejected for a new credit card, being turned down can sting.
While you may not be able to become an astronaut or convince your crush that you're the perfect match, the good news is that you may be able to better your odds of being approved for your next credit card.
Of course, every situation is unique, but here are four reasons why you may have been denied, and how you may be able to prevent it from happening again:
Your credit history is too new.
If you've never had credit or you've just begun building your credit, the credit bureaus may not have enough information to accurately give you a score. This is called a thin file.
Having a thin file may become frustrating, as you want to build your credit but keep getting denied because of your lack of credit.
However, there's a solution: try applying for a secured credit card. With these cards, your limit is backed by a cash collateral deposit that you provide.
If your credit card provider reports your payments to the credit bureaus, making your payments on time and not maxing out your card should help you start off your credit journey on the right foot and help your chances of being approved for unsecured cards in the future.
Your credit utilization rate was too high.
Credit issuers generally don't see maxing out your credit cards as a good thing. It could indicate that you're desperate for credit and may not be able to pay back your debt in the future.
This is why your credit card utilization rate, defined as your total credit card balances divided by your total credit card limits, is such an important part of your credit score.
If your credit utilization was too high, it may have knocked your score enough to cause the credit card company to deny your application.
You can lower your credit utilization rate in a few ways:
- Use less credit. This may seem obvious, but using your credit card less often can help lower your utilization rate. You can do this by using cash more often or simply spending less money.
- Ask for limit increases. Have a good history with your credit card company? Try asking them to increase your limit! Just be sure to ask whether this will result in a hard inquiry so you can make an informed decision about whether you want to proceed or not.
You've had too many inquiries in the recent past.
When you apply for a credit card and the credit card company checks your credit report in order to make a lending decision, a hard inquiry is often placed on your report.
Having multiple inquiries on your report may indicate that you're desperate for credit or aren't able to qualify for credit -- qualities that lenders generally frown upon.
It's also important to note that some credit scoring models count similar inquiries that are made within a certain amount of time (often 14 to 45 days) as one inquiry for scoring purposes. This may come into play if you're shopping around for an auto loan or mortgage.
If you have more than a couple of hard inquiries on your credit report and don't need more credit at this time, try waiting for some of your inquiries to fall off first -- they'll remain on your report for two years.
And don't forget: you can dispute inquiries that occurred without your permission.
You've made too many late payments.
Lenders consider payment history an indicator of risk when deciding whether or not to approve your credit card application.
A history of missed payments is usually a red flag for credit card issuers, as it indicates that you may not reliably repay debts, which could cost them money in the future.
As your percentage of on-time payments is often a huge factor of your credit score, make paying off your credit cards a priority.
Consider using your free time to earn some extra money to pay off those bills if necessary. But don't forgo paying your home, auto and/or student loans to do so.
Credit score reason codes could help you understand what happened.
The credit card issuer should send you a letter after denying your application - it's called an adverse action notice.
If the issuer used a credit score to make its decision, the notice should include your credit score and the main factors that affected your score.
These factors are assigned letters and/or numbers, which are sometimes called reason codes, action codes, score factors or factor codes.
An example of a reason code you might see is:
Reason codes don't always come with explanations, but in this case, you can see that 07 means your credit history is too new - the first point discussed above.
Your notice will include up to five reason codes listed in order of their importance to your score. These codes can give you a clue as to what you can change to improve your credit health, which may increase your chance of getting approved next time.
If the issuer used a VantageScore credit score, you can find an explanation for the code and what you can do to improve your credit health on ReasonCode.org.
If the issuer used a FICO credit score, you can look up an explanation of the code in this document. You can also find more details and recommendations for some of the common codes used with FICO scores on ScoreInfo.org.
With a little time and effort, if you work on improving the areas that may have caused your credit card rejection and use our tools to help guide your subsequent credit application decisions, you may be able to prevent credit card denials in the future.
About the Author: Jenna Lee is a copy editor at Credit Karma. Although her specialty lies in creating witty post-it notes, she also enjoys sharing all the financial information she's learned since joining Credit Karma in February 2012. When she's not working, you can probably find her trying out a new dessert recipe or learning/perfecting any musical instrument she can get her hands on. Say "hi" @leejennaa!
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