Denied a Credit Card? Here’s What to Do Next

While a credit card denial is disappointing, believe it or not, there is a silver lining. While the credit card issuer formally refers to a denial as an “adverse action,” that decision can turn into a positive for you over the long term. Learn what to do next and how to improve your chances of getting credit card approval.

What does it mean that I was denied a credit card?

A credit card denial is based on your application. Lenders use credit scoring systems to determine whether an applicant is likely to pay back the money charged on a credit card. 

When you apply, the credit card issuer reviews your application and your credit report. The company reviews many details, most of which can be found on your credit report:

• Your payment history

• Your debt balances

• Your credit limits

• How long you’ve had credit accounts

• Whether your balances are going up or down

• How much your last payment was on your other debts

• What types of credit accounts you have experience with

• Whether you’ve applied for new accounts recently

• Your income if you disclose it (it’s not on your credit report)

From this information, the issuer decides whether to approve your credit card application.

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Reasons your credit card application could be denied

Credit card applications are denied for various reasons. Here are some of the most common:

Low credit score: It’s possible you just applied for the wrong type of card. Top cards with attractive perks generally require excellent credit. Every lender sets its own credit score ranges and decides what they’ll consider a “good” or “excellent” score. But generally, most would consider a 670 or higher to be good. You can qualify for a credit card with lower scores but maybe not a top rewards card. 

High debt-to-income ratio (DTI): Your DTI is how much of your money you spend on debts each month. The formula is: monthly debts divided by before-tax monthly income. To lenders, it’s an indicator of whether you can afford a new payment. A healthy DTI ranges from 25% to about 50%, but the lower, the better. 

Recent delinquencies or bankruptcies: When it comes to lenders, few things are as important as a history of paying bills on time. A recent bankruptcy makes a new credit card approval difficult. There are other options, such as a secured credit card.  

It is illegal to deny a credit card application based on discrimination. Certain factors are not allowed for consideration when making credit decisions. These factors include:

• Race

• Religion

• Gender

• National origin

• Sexual orientation

• Marital status

• Age

• Whether any of a person’s income derives from public assistance

Once you find out the reason for denial in your particular situation, you can take steps to gain approval on your next application.

How to find out the specific reason for denial

You have rights that kick in when your application is denied. You have the right to find out why your application was denied. Under federal law, if you ask within 60 days of the denial, the lender must give you the specific reasons for your application’s denial or tell you that it is your right to learn these reasons.

If the denial is based on information in your credit report, the lender must do the following:

• Provide the three-digit credit score used in making the decision

• Name key factors affecting your score

• Give you the name and contact info for the credit reporting agency providing the report

• Let you know that you have a right to get a free copy of your credit report from that credit reporting agency within 60 days of the notice

• Explain the process to correct mistakes in your credit report or add information to make the report more accurate

What to do if your credit card application was denied

Don’t panic or take a credit card denial personally. Find out the reasons your credit card application was denied, and use that information to improve your credit situation. Depending on the stated reason, you might ask the credit card issuer to reconsider its decision.  

Consider alternative options

Secured credit cards: Build credit with a secured credit card. You’ll need a security deposit but otherwise a secured credit card works like a standard credit card. After a period of responsible use, you can get your deposit back and transition to a standard credit card.

Credit builder loans: These loans help you establish a positive credit history by letting you take on a small amount of debt. As you make on-time payments, with fixed interest, you establish your creditworthiness. The lender deposits your payments in a savings account or certificate of deposit, which you can access once the loan is repaid. This is usually a good option for those with no credit history or low credit scores. 

Authorized user: If you don’t have much of a credit history, look into asking someone with good credit to add you as an authorized user on one of their cards. The primary cardholder is responsible for paying the bill, but both people get the credit benefit if the bill is paid on time and the card isn’t maxed out.

Steps to improve your credit score and financial situation for future applications

Get started on improving your chances of approval in the future. That usually means improving your financial situation, and it’s something most people can do even with small steps.

• Pay all bills on time

• Add utilities to your credit score. Normally, your cellphone and utility bills are not included in your credit report. Contact the credit reporting agencies to have these bills added. Paying them on time and in full can improve your credit score.

• Improve your credit utilization ratio. If you have credit card debt, prioritize paying it down. 

Tips to avoid credit card denial in the future

Check your credit report regularly for errors and accuracy

Some credit report errors can hurt your credit score. The major credit bureaus – Equifax, Experian, and TransUnion – provide you with one free credit report every month on AnnualCreditReport.com. 

If you find a mistake, follow the credit reporting agency’s instructions for disputing it. 

Pay your bills on time and keep your debts low

When it comes to credit, paying your bills on time consistently is a major factor. Missed or recent late payments can really harm your credit score. 

You’ll get more points on your credit score if you have credit but don’t use it. The higher your balance is compared to your credit limit, the more you can hurt your score. Maxing out credit cards causes major credit score damage.  

Choose credit cards that match your credit profile and financial goals

Choosing the wrong type of credit card, such as one requiring excellent credit when yours is fair to good, can mean denial of an application for that particular card. Whenever you apply for a new account, the lender will probably do a hard credit check, and hard credit checks generally cause your score to drop by a few points. So if you apply for a card that you don’t qualify for, you could make it even harder to qualify for a different card.

When your financial situation needs a fresh beginning

Credit card rejections can point to a more serious sign that your financial situation needs attention. If you want to know what other options you have to manage a large debt problem, our Certified Debt Consultants are available to discuss what you can do next. Learn about Freedom Debt Relief’s debt relief program and if it makes sense for your situation. Get started for free here.