A tough economy and strict government regulations have made it even more difficult for some people to be approved for a credit card. In fact, the number of credit card applications that have been rejected has increased by 7 percent over the course of the last year and that’s a significant number of disappointed Americans who won’t have the luxury of borrowing. Being turned down can be embarrassing and frustrating, especially when there were no problems being approved in the past.
The smart consumer looks for credit cards with the lowest interest rates and fees. The trouble with that strategy is that those are the cards that are the most difficult to get approved for; reserved for individuals with excellent credit scores. They require a good amount of credit history and demonstrated debt management skills. There are, however, things you can do to improve the chances, but first you need to consider the reasons you may have been denied.
Limited Experience
In recent years, lenders have become much more diligent about accessing financial records before approving new applications for credit. With limited or no credit history, you offer no demonstrative example of your credit risk to potential lenders. If you haven’t borrowed in the past or have had no active accounts in the last six months, FICO can’t calculate a credit score; and without one, credit is seldom approved. In addition, the newly employed or those with an erratic employment history will be viewed as a risk to lenders.
Young people or those with limited credit experience will have a harder time being approved, especially if they require a co-signer. That doesn’t necessarily mean they’ll be denied, but the approval may be for a lower limit than they expected.
Other Signs of Trouble
An all-too-common reason for being denied a credit card is when an applicant has a record of poor money management, often resulting in a poor credit score. These behaviors are red flags to lenders, making them less likely to approve additional lines of credit:
• Accounts that have been charged-off for lack of payment
• Late and missed payments
• Collection and legal issues
• High credit balances
• Paying minimum payments on current debt
• Too many credit report inquires by mortgage, insurance and creditors
Only time will correct the impression of poor money management. It will require consistent effort to pay on-time, pay off delinquent accounts and eliminate large amounts of debt.
The Bottom Line
The accumulated affect that these actions have on your credit score is ultimately the number one reason a credit card application is denied. Limited credit experience, poor money management, too many credit inquiries and high account balances will certainly have a negative impact an applicant’s credit score. If it falls outside an issuer’s acceptable range, typically less than 650, you’re sure to be denied and corrective action should be taken.
If you’ve been denied, the first thing you should do is request a copy of your credit report. Along with an adverse action letter, banks are required to send a free credit score after a denial. You also have 60 days to request a free copy of your credit report, and that should give you a clear picture about the problems that need to be addressed.
