Applying for a credit card is usually an easy process, but if your credit card application is denied, the whole situation becomes much more stressful. You might not understand why your credit application was denied, and you might not be sure how denial of credit will affect your credit score. You may also be wondering if refusing a credit card will make it harder to apply for credit in the future.
Why would you be turned down for a credit card? Will a credit card decline hurt your credit score? Let’s take a look at how credit card denials affect your credit, why your application may have been denied, and how to avoid credit card denials in the future.
How a Denied Credit Card Application Affects Your Credit Score
A declined credit card application is likely to cause your credit score to drop slightly, but not because your credit application was denied. The credit bureaus don’t keep track of every denied credit application, and the only lines of credit that appear on your credit report are the ones that have been accepted.
However, the three major credit bureaus – Equifax, Experian, and TransUnion – keep track of the number of credit inquiries requested on your account. There are two types of credit checks: firm credit checks and flexible credit checks. Soft credit checks, which often take place when you apply for a job or go through the process of pre-approving a loan or credit card, don’t affect your credit score. Serious credit checks, which take place before a lender makes a final decision on your credit application, are one of the five factors that affect your credit score.
Every time there is a serious credit check on your credit report, your credit score will drop by a few points. This happens whether your credit application is approved or denied. A single credit application will not lower your credit score, but multiple credit applications over a short period of time may suggest that you are an at-risk borrower, which is why new credit applications represent 10% of your credit score. .
Why your credit card application could be refused
Lack of credit history
Your credit history represents 15% of your FICO credit score. If you don’t yet have a lot of credit history, it can be difficult to apply for new lines of credit, unless you choose a credit card that is specially designed for people with limited credit histories.
If you want to quickly improve your credit history and become eligible for more credit options, we have five tips to help you build a positive credit history.
Low or insufficient credit score
Most credit cards are designed for people within a certain credit range. There are credit cards for people with bad credit, cards for people with fair and average credit, cards for people with good credit, and cards for people with excellent credit. If your credit score is not high enough for the credit card you are applying for, your application may be denied.
If your credit card application is denied due to a low or insufficient credit score, you are not alone. According to a 2019 Bankrate survey, 58% of Millennials were refused a credit card or loan application because of their credit rating.
Want to see if you prequalify without affecting your credit score? Check out our CardMatch feature and get a card that best suits your needs.
Irresponsible use of the card
Lenders like to see a history of responsible credit card use before offering you new credit. If you’ve missed too many credit card payments, for example, a lender might deny your credit card application. Your request may also be denied if you don’t pay your monthly credit card bills on time – or if you regularly max out your credit cards.
Errors on your credit report
In some cases, your credit card application may be refused not because of something you did wrong, but because of an error in your credit report. According to a 2013 Federal Trade Commission study, one in five consumers had an error on at least one of their top three credit reports. This error can be as simple as an outdated address – or as complicated as a history of missed payments that actually belongs to someone with a similar name.
This is why it is important to regularly review your credit reports and dispute any errors you find.
How to avoid credit card denial in the future
Review your spam letter
The best way to find out why your credit card application was denied – and how you can prevent a credit card denial in the future – is to see your Adverse Action Notice. Credit card companies have 30 days to explain why your request was denied, although in most cases your letter will arrive much sooner.
Your spam notice can arrive by post, email, or both. Use the information provided in the letter to avoid future credit card denials. If you’ve been turned down because of a low credit score, for example, try improving your credit score before your next credit card application.
Request your credit report
If you haven’t reviewed your credit report in the past few months, it’s time to request your credit report and scan it carefully. Make sure all of the information, from your name and address to your credit card payment history, is correct. If you find any errors on your credit report, dispute them as soon as possible. Equifax, Experian, and TransUnion all offer simple online dispute forms to help you get started with the process.
Do not reapply right away
While you might be tempted to reapply for credit right away, remember that several serious credit applications over a short period of time can lower your credit score – and potentially make it harder to acquire new lines. credit. Before applying for a new credit card, look for a card that matches your current credit history and credit score well. This way, your application will have a better chance of being accepted.
Take action to improve your score or build your credit
If you can improve your credit score or build your credit history before applying for a new credit card, you’ll be better off. The fastest way to improve your credit score is to practice responsible use of credit on your existing credit accounts. Make your payments on time, pay off your balances in full when possible, and avoid maxing out your credit cards.
If you want to establish your credit history, consider applying for a secured credit card. Secure cards give you a line of credit in exchange for a small refundable security deposit. They are also a great option for people who do not yet meet the requirements for premium credit cards. If you use your secured credit card responsibly, you will simultaneously build your credit history and your credit score, which will come in handy on your next credit application.