What should you do if the bank denies your credit card application?

The first step is to understand the reason why the company turned you down. This provides you the feedback needed to strengthen your weakest areas.

Do not worry too much about the effect of rejections on your FICO or Vantage score. Hard inquiries are a minor factor that diminishes over time – if they appear on the report at all.

The length of time that you should wait before applying again depends on the motive for the adverse action. Many people can act right away – if they know the right questions to ask.

Reasons for Credit Card Denial

There are many possible reasons why a bank might deny your credit card application. Risk managers are on the lookout for signs that a prospective customer might default in the future. One default wipes out the profit from 20 good customers.

Therefore, they err on the side of caution when weighing your score, employment, income, housing, and other information.

Bad Credit

Having bad credit is the most common reason for a credit card denial. People with a negative payment history are likely to repeat the same behaviors in the future. Banks are likely to reject applicants with one or more of these FICO negative factor codes.

CodeFactor
02Level of delinquency on accounts
13Time since delinquency is too recent or unknown
18Number of accounts with delinquency
20Time since derogatory public record or collection is too short
21Amount past due on accounts
38Serious delinquency and public record or collection filed
46Payments due on accounts
81Frequency of delinquency

Bring your delinquent accounts back to a current payment status to improve qualifications. The negative impact lessens over time.

No History

Having no history or one that is too short is another common cause of a credit card rejection. Banks simply do not have enough data to make a reliable prediction about your future. Combining a low income or short employment record with any of these FICO factors will scare the companies away.

CodeFactor
07Account payment history is too new to rate
12Length of time revolving accounts have been established
14Length of time accounts have been established
25Length of time installment loans have been established
28Number of established accounts

Begin with a secured card to establish your file and build a history of on-time payment. Small personal loans are another good starting point.

Secured Card

People with bad scores and/or short histories often turn to secured credits cards. Banks still refuse to approve a portion of these applications when they detect possible fraud associated with the underlying collateral.

The bank may pull a ChexSystems report as part of its underwriting process. The report contains a history of closed checking and savings accounts over the previous five years. A closed account suggests past deposit fraud or other improper activity.

Student Loans

Two factors may cause a bank to turn down a credit card due to student loans aside from the obvious – not paying on time and according to terms. Delinquency is a knockout punch every time.

  1. Deferred student loans are a signal that you are currently unable to handle the payments. The deferral status will end at some point, making it more difficult to stay current on your other obligations.
  2. Student loans in active payment status consume a large portion of your free cash flow. The company may shy away because your debt-to-income ratio is too high.

Good Scores

There are several possible reasons for a credit card denial for people with good or excellent credit scores. The bank’s underwriting department considers other factors when making a decision about a new application.

Fraud Signals

A bank may reject a credit card of a person with good scores because of fraud concerns. Identity theft is prevalent and occurs frequently on new applications. The issuing companies are responsible for fraudulent charges, so they act cautiously when they detect possible signs.

  • Fraud alerts placed on consumer reports tell lenders to be careful
  • Address issues are also signs of high-risk or criminal activity
    • Recent address changes allow crooks to receive new cards
    • Certain address types have a history of high risk
      • Mail services
      • Post office boxes
      • Place of business
      • APO – Army and Air Force post office
      • FPO – Fleet post office for Navy and Marines
      • DPO – Diplomatic post office

Employment & Income

Employment and income concerns are another factor leading to a credit card rejection of a person with good or excellent scores. The bank needs to see that you have enough free cash flow to manage the account responsibly.

Three application questions provide an answer to whether you can handle additional charges.

  1. Monthly rent or mortgage payment
  2. Employment status and employer name
  3. Estimated annual income

Do Credit Card Denials Hurt Score

Credit card application denials and transaction declinations do not hurt your three credit scores directly. A single hard inquiry appears only on the report of the furnishing bureau. Learn what information the banks do and do not report before determining next steps.

Denied Applications

Denied credit card applications do not affect your FICO or Vantage score at all three bureaus (Equifax, Experian, TransUnion) – they extend the time the hard inquiry at one bureau has meaning. Banks do not report underwriting decisions. They only report approved and opened account activity.

  • Hard inquiries display only on the report of the bureau furnishing the file. Most issuers choose one bureau report when making an underwriting decision. Therefore, the hard inquiry lowers only one of three possible scores.
  • Hard inquires signal that you applied to borrow money and the issuer may approve the application. Approved accounts render the inquiry meaningless when it appears on all three consumer reports 30 to 60 days later.
  • The impact of hard inquiries on scores diminishes over time and goes to zero at 12 months. Without an approval to override its meaning, its effects linger for another 10 months.

Declined Transactions

Declined credit card transactions do not hurt your credit score directly. The banks do not report any transaction details (purchases, interest charges, fees, payment amounts, balance transfers, cash advances) to the consumer reporting agencies. However, high utilization often triggers transaction declinations.

  • Spending above the account limit will result in a declined transaction and impacts several important score factor. The companies do report the limit and balance at the end of each billing period.
  • The scoring equations calculate several interim factors using the limit and balance data.
    • 10: Ratio of balance to limit on revolving accounts is too high
    • 11: Amount owed on revolving accounts is too high

Keep your revolving utilization ratio below 30% to boost your score and avoid having your transactions declined at the point of purchase.

How Long to Wait After Denial

How long should you wait to apply for a credit card after being denied? Your first step should be to read the adverse action letter(s) sent by the bank(s). The letter(s) should provide an explanation of where your qualifications fell short.

Based on the information in the letter, file a reconsideration to correct any errors, reapply for the same card after improving your qualifications or apply right away for a different card or at another company.

Recent Activity

People with a high level of recent activity have an odd twist to consider after a credit card company turns them down. The banks want to see that you can manage new accounts responsibly before extending you even more borrowing capacity.

These two activity related FICO factor codes work differently and signal unique strategies.

  • 08 Too many inquiries last 12 months: applies only to the report from the furnishing bureau. Inquiries signal the possibility of a new account in the future and have odd distributions. For example, this pattern could play out based on which bureau the issuer pulls.
    • Equifax: 5 inquires – wait for 6 to 12 months
    • Experian: 0 inquiries – no waiting
    • TransUnion: 0 inquires – no waiting
  • 09 Too many accounts recently opened: applies to each bureau report since most banks report to the big three agencies. A new account cancels the impact of the earlier inquiry – if any appear. People with this adverse action reason should wait 6 to 12 months before applying again.

Reconsideration

Do not wait to submit a reconsideration request if the rejection was based on erroneous or missing information. Banks want to approve people who project to manage new accounts responsibly.

Waste no time correcting the wrong data or filling in the blanks on missing elements. Fax the documentation to expedite the process and keep your personal information secure.

Same Card

You will have to wait until your qualifications improve before applying for the same credit card twice at the same bank that turned down your original request. The length of time does not matter. You must hold off until at least one of these factors look better.

  • Higher credit score
  • Increase in income
  • Longer tenure with an employer
  • Longer time at the same address
  • Lower rent or mortgage expenses

Different Card

You can apply right away at the same bank for a different card after they rebuff your first application. Underwriting rules differ for each of the cards options they might promote. Some have very strict criteria while others have looser underwriting requirements.

  • The hard inquiry will probably display on the report they pull. This will suppress your score but an analyst may over-ride the inquiry because it does not represent a risk of two open accounts.
  • Request to open an account targeting a riskier profile to improve your approval chances. For example, if the company rejected an unsecured contract, a secured version might lead to success.

Different Bank

Applying for a credit card right after a denial can result in an approval if you choose a different issuer. Underwriting rules differ as do their bureau preference tables.

  • Every issuer targets a unique population of borrowers and their underwriting reflects this diversity. Just because one bank turned you down does not mean the next one will not approve your application.
  • The hard inquiry from the first rejection appears on only one bureau report. Submit a second application at a bank that uses a different bureau from the first. Just call and ask who they use in your geographic area. Two other bureaus will not show the first inquiry.
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