Credit card application denials may be received with shock. Denials are often received but seldom discussed. Tell me if this sounds familiar. “I’m sorry but we could not approve your application at this time” or, “Your application is being reviewed, we will notify you in writing in 5-7 business days.”
My clients always ask why they were denied for credit cards. While I would need to access their credit reports to make an accurate determination, there are a few common reasons that credit card applications are denied. Credit card application denials will reflect as inquiries on your credit report, negatively impacting your score. Before you allow yourself to be enticed by commercials, emails, and mail offers, become well informed and educated on what these companies are looking for.
While I don’t advise credit cards for everyone, the fact of the matter is some of you will still apply for them. So let’s get you credit card educated.
Here are the primary reasons for credit card application denials:
1. Wrong Credit Card Type
The number one reason why most consumers receive credit card application denials is simply because they apply for the wrong credit card for their credit standing.Seventy five percent of consumers don’t know their current credit score. Click To Tweet
There are cards that are reserved for people with certain credit ratings. If you have fair credit yet apply for a card reserved for those with an excellent credit rating, you will be denied. It’s always best to apply for a credit card based on your credit score or use this scale:
Excellent Credit: 780 – 850 Score Range
Good Credit: 720 – 780 Score Range
Fair Credit: 620 – 720
Bad Credit- 620 Or Lower
The second reason why most consumers get denied is because of their previous uses of credit. Not credit score, but credit history. It is possible to have a decent score but poor credit history. Late payments, high card utilization, charged-off accounts with open unpaid balances, or maxed out closed accounts, affect your ability to qualify for new credit.
Credit demonstrates to financial institutions that you can pay your credit obligations on time and keep a low balance while doing so. If you have late payments, and some of the items mentioned above, then you are unreliable with credit accounts extended to you. This makes you a liability.
Too Many Credit Card Inquiries Too Soon
The final reason most consumers are denied a credit card is because they have applied for too many new accounts in a short period of time. It doesn’t matter if the accounts were approved or unapproved. Multiple inquiries for credit signals to creditors that you are either in a financial bind or that you have the potential to become overwhelmed with credit.
Keep in mind pre-approval offers that come to you in the mail are “soft pulls” which have no impact on your credit score.
Credit card denials can be embarrassing, but sometimes they are actually a gift. If you prefer not to use credit cards, there are other products available such as credit builder loans and secured credit cards. You can also become an authorized user on a family member’s open accounts that are in good standing. Read more about becoming an authorized user to improve your credit score here.