What Can You Do When Denied for a Credit Card?

What Can You Do When Denied for a Credit Card? article image.

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If your credit card application is initially denied, don't worry: It's not the end of the road. There are several things you can do to have the card issuer reconsider your application, and steps you can take to reduce the chances of it happening again. But first, you need to find out why your credit card application was denied.

Why Did I Get Denied for a Credit Card?

If a lender denies your credit card application, it's easy to find out why. Lenders must provide you with what's called an adverse action letter explaining why they denied your application. In addition, the lender should include instructions for requesting a free credit report. If they don't, you can request your free credit report from Experian.

Your adverse action letter will likely list one (or several) of the following reasons your credit card application was denied:

  • Too much debt. As the saying goes, banks only want to lend money to people who don't need it, and thus you can be denied for having too high of a credit utilization ratio, or debt-to-credit ratio. This is the total amount of revolving debt you have divided by the total amount of credit you've been extended. And while there's no strict rule on what constitutes too much debt, experts recommend keeping your credit utilization ratio below 30%.
  • Too many recent credit applications. When you've applied for multiple new lines of credit in a short period of time, lenders can interpret this as a possible sign of financial trouble. This can even apply to those with excellent credit.
  • Limited credit history. Lenders like to see a long credit history showing you've made loan and credit card payments responsibly for many years. This can be a problem for young adults, recent immigrants and those who have avoided credit in the past. If you have a "thin file," or not much credit history, lenders may avoid extending you credit.
  • Negative account information. Your payment history is the most important factor on your credit report, and having negative payment information, such as missed payments, can severely damage your credit. Negative information can also include charge-offs, bankruptcies, and foreclosures.
  • Recent late payments. Even though late payments stay on your credit report for seven years, the more recent the late payment, the more it will hurt your credit.
  • Being between age 18 and 21. Under the Credit CARD Act of 2009, young adults have to be able to show that they can repay their loans using their own income, limiting their ability to be approved for new accounts.

What to Do When You Get Denied for a Credit Card

Once you've read your adverse action letter, you can call the credit card issuer and ask a representative to have the company reconsider your application. If you have new information that wasn't originally included in your application, be sure to offer it now.

For example, you may not have included all eligible sources of income, such as retirement savings, alimony, child support, and government benefits. Furthermore, spouses who don't work can include income from their working spouses as long as they have access to these funds to pay the credit card bill. If you already have an account with the credit card issuer, you can request that a portion of your credit line be moved from the existing account to the new one.

If your reconsideration request is ultimately unsuccessful, however, then you'll want to take a closer look at your credit.

Does Getting Denied for a Credit Card Hurt Your Credit Scores?

By itself, a denied credit card application won't have a significant effect on your credit scores—but that's not the whole story. Every time you apply for any type of new credit, it results in what is called a hard inquiry on your credit report. While a single hard inquiry may have a small, temporary effect on your credit report, several hard inquiries within a short period of time will have a more significant effect.

Applying for a Credit Card When You Have Bad Credit

If you've struggled with credit or have a thin credit file, you won't have as many options for credit cards. But you can still find cards that may work for you—specifically secured cards or subprime cards. A secured card requires you to submit a refundable security deposit before the issuer will open your account. After that, it works much like a standard credit card. You are still required to make a monthly payment, and you will be charged interest unless you pay your entire statement balance before the due date. When you close your account in good standing, you'll receive a refund of your security deposit.

Find the best secured credit cards in Experian CreditMatch.

A subprime card doesn't require a security deposit. Instead, you can expect to pay higher interest rates and fees because the lender has determined that you are at increased risk of default. Subprime cards also offer fewer cardholder benefits and are unlikely to feature rewards for your spending.

Build Your Credit Before Reapplying for a Credit Card

The best way to increase your chances of being approved for a new credit card is to improve your credit. Thankfully, there are several ways you can do this, in a relatively short period of time:

  • Pay all your bills on time every month. If you struggle to pay your bills punctually, configure your accounts to make automatic payments, or set reminders for payment due dates.
  • Decrease your debt. Pay off as much debt as you can to reduce your credit utilization ratio to under 30% or, ideally, under 10%.
  • Become an authorized user on a family member's credit card. Be sure the credit card issuer reports that you are an authorized user to the credit agencies.
  • Ask a family member with excellent credit to cosign a loan—and make all payments on time.

When a credit card issuer denies your credit card application, it can feel like your entire financial life is being judged by someone you've never met. But rather than dwelling on the rejection, the most important thing you can do is to find out why your credit history was lacking and change your situation accordingly. To do this, request a free credit report so you can see your latest credit information. By understanding what factors are hurting your credit, you can take steps to improve it—and ensure you have the best chance of getting a credit card the next time you apply.

Want to instantly increase your credit score? Experian Boost helps by giving you credit for the utility and mobile phone bills you're already paying. Until now, those payments did not positively impact your score.

This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.

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