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Secured credit cards require an upfront deposit as collateral for your line of credit. Because that deposit is usually equal to your account's credit limit, it's natural to think you'll be approved as long as you have the required cash.
However, you can still be turned down if you don't meet the card issuer's underwriting requirements. These are the standards a card issuer expects from a borrower, and can include a number of things such as your credit scores, income and existing debt. Here's what you need to know about the process and what you can do if you get denied.
What to Do if You're Denied for a Secured Credit Card
If you've been denied credit due to information found on your credit report, the lender should have sent you an adverse action letter. This letter will explain why you were denied and the rights you have as a consumer, such as the ability to get a free copy of your credit report. If your credit score was the basis for your denial, the letter will also include your score, the date it was pulled and the method used to generate it.
Here are some steps you can take after being denied for a secured card that may help to improve your chances of getting approved next time.
Find Out Why You Were Denied
The adverse action notice will provide up to five reasons for denial. Make sure to read the reasons you were denied carefully so you understand how to address the issue.
If you were denied due to your creditworthiness, the reason provided can help you determine what you need to do to build your credit and improve your odds of getting approved when you apply again.
It's also possible your denial had nothing to do with your creditworthiness. For example, you may have been denied because you didn't complete the application properly or you don't meet the card issuer's age requirement.
Check Your Credit Report
The adverse action notice you receive should provide instructions for requesting a free copy of your credit report from the bureau that provided it to the card issuer. If your Experian report was used in the card issuer's decision-making process, visit the Experian Report Access hub and follow the instructions.
As you review your report, look for areas you can address before you submit another application. Also, look for information that may be inaccurate or fraudulent, which credit reporting agencies allow you to dispute. If a creditor can't verify negative information on your credit reports, it may be removed.
Request Help From a Loved One
Some credit card issuers allow you to have a cosigner apply with you. A cosigner, in essence, vouches for you and throws their creditworthiness behind you, which may cause a credit card issuer to view your application more favorably. If a loved one has a solid credit history, asking them to cosign may be a good idea as long as you intend to stay current on your credit card payments.
When your account has a cosigner, it will show up not only on your credit report but also on the cosigner's, for better or for worse. Your cosigner is also equally responsible for paying the debt if you can't. If you worry about making your payments, remember that defaulting on a credit card you've asked someone to cosign is a quick way to sour a relationship.
Reasons Why You Might Get Denied for a Secured Credit Card
Every credit card issuer has different criteria for approval, but generally they are all looking for borrowers they can reasonably expect to stay current on their debt payments. Here are some common reasons you may not get approved for a secured credit card:
- Not able to demonstrate an ability to repay debt: Lenders are required by law to assess your ability to repay any debt you incur on a credit card. If your income is insufficient, even having enough money for the deposit won't be enough to get approved.
- No verified income: If you claim income on your application, you may need to provide documentation for it. If you can't, your application can be denied.
- Not enough funds for the required deposit: If your credit is in good enough shape to be approved, but you can't cover the card's deposit, you'll need to wait until you have the required cash to apply again.
- Certain negative items on your credit report: Some card issuers may deny your application if you're currently going through a bankruptcy, or even if you've had a bankruptcy discharged recently. The same may go for other major negative items, such as collection accounts, repossessions and more.
- Extremely low credit score: While secured credit cards are accessible for people with bad credit, card issuers may still have a minimum credit score requirement for approval. If you don't meet that requirement, you may need to spend some time building your credit score.
Improve Your Credit Score Before Applying Again
If you get denied credit, you may be tempted to immediately apply for a different card. But keep in mind, a hard inquiry will be added to your credit report every time you apply for credit—even if you're denied—which can result in a small decrease in your credit score.
If you apply for multiple credit card accounts in a short period, it can have a compounding negative impact on your credit score. Credit card applications can even be denied outright due to too many recent applications in your credit file.
As such, it's essential to take some time to improve your credit before you apply a second time. Here are some tips to help you get started:
- Pay bills on time. Your payment history is the most influential factor in determining your credit score. Make it a goal to get caught up on past-due credit accounts and pay your bills on time going forward.
- Reduce credit card balances. Your credit utilization rate—the percentage of your available credit you're using—is another important factor in your credit score. If you have other credit cards, try to pay down their balances—the lower your utilization rate, the better.
- Get credit for utility and phone payments. If you pay your utility and phone bills on time every month, you can get credit for those payments with Experian Boost®ø. This free opt-in service allows you to connect your bank accounts, identify your utility and phone payment history, and confirm you want it added to your Experian credit file. You'll receive an updated FICO® Score☉ instantly.
- Apply for new credit only if you need it. While hard inquiries typically don't have a significant impact on your credit score, it can still make it harder to get approved for credit in the future, especially if you have other negative items on your credit report.
Monitor Your Credit to Keep Track of Improvements
As you're working on building your credit history, Experian's credit monitoring service can help you keep track of your improvements with a FICO® Score for free powered by Experian data. You'll also get real-time alerts when new inquiries and accounts get added to your credit report.
As you work on building good credit habits and keep track of your improvements, you'll be on the right path to getting approved the next time you apply for a secured credit card.