Credit Card Application Denied: 7 Reasons Why and What to Do
If you've ever applied for a credit card only to be denied, then you know the feelings of frustration and confusion that come with it. It's true — getting your credit card application rejected can feel pretty disheartening.
You’re not alone, though. In 2020, 19% of millennials said their credit applications were denied. But rather than beating yourself up over what happened, it's important that you take a step back to get some perspective on why your credit card was denied in the first place.
Follow along as we explore seven reasons why your credit card application may have been rejected and discuss how you can work toward improving your financial standing (hint: getting a Cheese credit builder loan can certainly help in most cases).
7 Potential Reasons Why Your Credit Card Application Was Denied
You’ve just received the email. Another denial. Now you’re thinking, “why can't I get approved for a credit card?” If you find yourself in the unfortunate situation of having your credit card application denied, don't panic.
First, take your time to understand why. Most credit card companies will provide a written explanation of why they denied your request.
Don't be afraid to double-check their decision and investigate if they have made any mistakes. You can do this by going through your credit report (which you are entitled to have free of charge) or reaching out to customer service departments; they may be able to provide additional clarity during this process.
Depending on your financial situation, the credit card application denial could be due to one of these seven common reasons.
1. Low Credit Score
One of the most frequent reasons for a credit card application being declined is having low credit scores (note that many factors affect your credit score; we’ll discuss a few below).
Credit scores are numerical values based on an individual's credit history, so if someone regularly pays their bills late or has certain negative items listed on their file, their score will suffer.
People with low credit scores are typically considered riskier to lend money to. This is why credit card companies are hesitant to approve credit cards for people with low credit scores; instead, they want to offer lines of credit to people who have demonstrated financial responsibility and can pay their debt back on time.
2. Limited Credit History
Having limited or no credit history can make getting approved for a credit card difficult, as creditors need proof that you’re reliable and capable of making payments on time with minimal risk.
A good way to prevent an application from being denied on limited credit history grounds is to try applying for cards specific to those building their credit scores, such as student and secured cards. A credit builder loan is another great way to build positive credit history.
With consistent use and regular repayment, limited credit won’t hold you back for long.
3. Late Payments
Having a lot of missed or late payments on your credit report can be a huge challenge when applying for a new credit card. This is because it shows lenders that you may have an irresponsible past with managing repayment schedules or simply not managing your financial obligations.
Many lenders will consider late payments before granting approval, often leading to an automatic denial. If possible, pay off any late or missed payments before you apply for a new credit card to increase your chances of approval.
However, consider that late payments are the biggest factor affecting your credit score. If you miss payments consistently, they’ll still appear on your credit report. How long do late payments stay on your credit report? Seven years. This is why ensuring you pay your credit card bills (or other loan payments) on time is important.
4. High Debt-to-Income Ratio
A high debt-to-income ratio means that too high a percentage of your income is already obligated to other debts, like current loans or mortgages. This leaves you unlikely to be able to handle carrying another high-interest credit card payment.
Applying for a credit card with an already high debt-to-income ratio could not only lead to an application denial, but it could also cause damage to your credit score.
The best practices in this situation would be to get your finances under control before reapplying and considering alternative options like a credit builder loan or secured card as a stepping stone back towards getting approved for traditional credit cards.
A bankruptcy filing remains on an individual's credit report for seven to ten years. During this time, getting approved for new credit cards with favorable terms is exceptionally difficult.
If you have filed for bankruptcy in the past, your best course of action is to start rebuilding your score by obtaining a secured card or, as mentioned above, a credit builder loan. Focus on demonstrating responsible financial management over some time.
6. Insufficient Income
Insufficient income occurs when you do not make enough money to cover expenses and debt payments. If this is the case, it could mean that lenders are not convinced you can pay back any amount they give you.
To prevent application denials due to insufficient income, it’s important to plan and budget out your monthly expenses and debt payments, ensuring that there is enough left over for all of them after you receive your paycheck.
7. Too Much Debt
Trying too hard to juggle too much debt is a common problem that can lead to a credit card application getting denied. Credit card companies are concerned when they see too much debt, as they fear the person won't be able to cover their charges.
Paying too many installments at once or having too few assets to support your credit score can mean many red flags go up before they’ve even finished reviewing your application. It's important not to let too much debt pile up if you want to land yourself a new credit card.
How to Improve Your Credit Card Application
Have you figured out why your credit card application was denied? Now it’s time to stop thinking, “Why can’t I get a credit card?” Instead, focus on figuring out how to improve your application to apply again soon.
Here are four actionable tips you can implement to help you ensure your credit card application isn’t denied next time around.
Assess Your Credit Report
If you are rejected for a credit card application, look at your credit report before anything else. It might turn out that there was an error in the report, and once it's fixed, you can reapply.
If there are no errors, look closer to see what's been causing the low score and create a game plan to fix it. This could be anything from cutting back on spending to paying off debt or actively monitoring your credit score more frequently.
Make On-Time Payments
If the denial was due to low credit caused by missed payments, the solution is simple: on-time payments.
It pays to take steps to ensure that you always pay on time. Setting up payment reminders on your phone, for example, or signing up for autopay, are simple ways to ensure you cover the minimum amount owed each month.
Pay Off Debt
What is the easiest way to make your credit card application more attractive? Ensure you’re not applying with lots of debt. Paying off debt can help lower your debt-to-income ratio and reduce your credit utilization rate, both of which boost your credit score.
Increase Your Income
Consider increasing your income if you can’t pay off debt right now. While it’s not ideal, picking up a side hustle might be a great option as you work to reduce your debt and improve your earning potential for a credit card application.
Improve Your Credit with Cheese
Finally, you can improve your credit with Cheese. The Cheese credit building app makes credit building easy and hassle-free.
It all starts with a credit builder loan (that doesn’t even require a hard credit check!). After that, each payment you make will be reported to the three credit bureaus and added to your savings. Over time, this helps you build a positive credit history.
Plus, you get your money back when the loan is paid off. Talk about a win-win all around! With the Cheese credit-building app, boosting your credit has never been simpler. Click here to get started. It could be just what you need to avoid another credit card application denial.