8 Reasons Why a Credit Card Application is Denied
Just got denied for a credit card? Don’t feel too bad. Most of us will have an application denied at least once in our lives for a variety of reasons, including low income, a history of late payments, a bad or nonexistent credit history, or a bankruptcy on file (to name just a few examples).
To help you better understand — and have a greater chance of success with — the credit card approval process, we’ll take a look at common reasons why credit card companies may deny an application. Low Income or Unemployed
Having a low or no income could be a major factor in your credit card application being declined. Credit card issuers usually have a minimum income requirement for the majority of their cards — especially premium cards. Income is important to issuers because they want to know that a cardholder won’t have a problem paying back what they charge to the card.
Note that sometimes it may be possible to qualify for a credit card based on household income. Many credit card providers give two income thresholds: an individual income and a household income requirement. So, if you don’t meet the individual income requirement, you may be able to qualify based on the cumulative income of your household. Applying for Various Loans
Many people don’t realize that applying for too many loans (like applying for a car loan, several credit cards and a student loan in a short space of time) could be a factor in their credit card application being declined. That’s because applying for many sources of credit is viewed by credit card issuers as 'credit seeking behaviour.' This kind of behaviour is a signal to potential creditors that you may be experiencing financial difficulty and are therefore a credit risk.Late or Missing Payments
Payment history is the single biggest factor affecting your credit score. It accounts for 35% of your overall score. For that reason, if you habitually pay your credit card bills late or not in full, you’ll generally have a low credit score on your credit report.
Your credit report is important because, when you apply for credit, credit card issuers will almost always check a prospective applicant’s credit report before approving an application. They want to see that you have a solid credit score and that you have a track record of making payments on time. A history of late or missed payments will generally signal to credit card companies that you won’t be able to manage a credit card responsibly, and therefore your credit card application will be turned down.No Credit History
When applying for regular credit cards, a lack of a credit history could be a big barrier to getting approved. In general, credit card companies like to see applicants with a long credit history on their credit report because that way, they can get a better overall sense of whether or not a potential card user has responsibly managed their credit cards in the past.
The good news is that, if you don’t have a solid credit history, you can apply for a secured credit card. These are generally intended for new immigrants or younger Canadians who haven’t yet built up a credit report. Bad Credit History
It’s likely pretty obvious why a potential creditor would be wary of approving a credit card for someone who has a history of bad credit. Credit card companies turn to your credit report to see if you’re credit worthy because they don’t want to extend credit to someone who has a history of not paying back their debts.
That being said, even though regular credit cards may be currently out of reach, as with people with no credit history, a secured card could be the answer. It’s much easier to get approved for a secured card — even if you have a bad or no credit history — because with a secured card you have to provide a security deposit as collateral to guarantee that you’ll pay off your balance. Your deposit then becomes your credit limit and you get the money back when you close your account in good standing. Recently Filed Bankruptcy
Unfortunately, a bankruptcy on your credit report is one of the most difficult things to overcome when it comes to getting approved for a credit card. A bankruptcy will stay on your credit report for at least six years and could stay on as long as 14 years if you declare bankruptcy more than once. Generally, applicants with a bankruptcy on file will be viewed by credit card companies as not credit worthy and too much of a risk. Even credit card issuers who offer secured credit cards will commonly deny applicants who are currently in bankruptcy. It’s a good idea to wait a year or two after filing bankruptcy to apply for a new credit card.
There are, however, a few credit card providers who will approve applicants for a secured credit card. Though these cards tend to come with annual and even monthly maintenance fees and have strict requirements for making on-time payments and not going over your credit limit.Fraud Alert on Your Credit Report
Having a fraud alert on your credit report is another reason your credit card application might be denied. A fraud alert is a notice that credit bureaus place on your credit report that tells credit card companies and other potential creditors that you have been a victim of identity theft and fraud. It’s a kind of red flag that alerts would-be creditors to be cautious about approving credit.
While these kinds of fraud alerts protect you and potential creditors, they can make it harder to get approved automatically when you fill out online credit card applications. You may have to provide additional information and go through a more comprehensive check before being approved. Recently Opened a New Credit Card
If you’ve recently opened a new credit card account or have been actively applying for credit cards, this could also negatively affect your chances of getting a credit card application approved. That’s because credit card companies may want to wait to see how well you manage your credit card payments before offering you a new card.
Furthermore, each time you apply for a credit card, it can appear as an inquiry on your credit report and slightly reduce your credit score temporarily, which will make it harder to get approved. It’s always a wise move to wait several months between card applications.The Bottom Line
While having a credit card application declined can be discouraging, with time and effort, you’ll be able to improve your score and have more success with your applications.