Applying for a credit card is generally an easy process — but if your credit card application is denied, the entire situation becomes a lot more stressful. You might not understand why your credit request was declined, and you might not know how the credit denial will affect your credit score. You also might be wondering whether getting denied for a credit card will make it harder to apply for credit in the future.
Why would you get denied for a credit card? Will a credit card denial hurt your credit score? Let’s take a look at how credit card denials affect your credit, why your application might have been declined and how to avoid credit card denial going forward.
How a denied credit card application affects your credit score
A denied credit card application is likely to cause a slight drop in your credit score — but not because your credit request got declined. Credit bureaus don’t keep track of every declined credit request, and the only lines of credit that appear on your credit report are the ones that got accepted.
However, the three major credit bureaus — Equifax, Experian and TransUnion — do keep track of the number of credit inquiries requested on your account. There are two kinds of credit inquiries: hard credit checks and soft credit checks. Soft credit inquiries, which often take place when you are applying for a job or going through the pre-approval process for a loan or credit card, do not affect your credit score. Hard credit inquiries, 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 hard credit inquiry on your credit file, your credit score will drop by a few points. This happens whether your credit request is approved or declined. A single credit inquiry won’t tank your credit score, but multiple credit inquiries in a short period of time may suggest that you are a risky borrower — which is why new credit inquiries make up 10% of your credit score.
Why your credit card application may have been denied
—Lack of credit history
Your credit history makes up 15% of your FICO credit score. If you don’t have much of a credit history yet, it might be hard to apply for new lines of credit — unless you choose a credit card specifically designed for people who have a limited credit history.
If you want to improve your credit history quickly and become eligible for more credit options, we’ve got 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 or average credit, cards for people with good credit and cards for people with excellent credit. If your credit score isn’t high enough for the credit card you’re applying for, your application might be denied.
If your credit card application is declined due to a low or insufficient credit score, you’re not alone. According to a 2019 Bankrate survey, 58% of millennials have had a credit card or loan application denied because of their credit score.
—Irresponsible card usage
Lenders like to see a history of responsible credit card usage 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 application might also be declined 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 might get declined not because of anything you did wrong, but because of an error on your credit report. According to a 2013 Federal Trade Commission study, one in five consumers had an error on at least one of their three major credit reports. This error could 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’s important to review your credit reports regularly and dispute any errors you find.
How to avoid credit card denial going forward
—Review your Adverse Action Letter
The best way to learn why your credit card application was denied — and how you can prevent a credit card denial going forward — is to review your Adverse Action Notice. Credit card companies have 30 days to explain why your application was denied, though in most cases your letter will arrive much sooner.
Your Adverse Action Notice might arrive via mail, email or both. Use the information provided in the letter to prevent future credit card denials. If you were denied due to a low credit score, for example, work on improving your credit score before your next credit card application.
—Request your credit report
If you haven’t reviewed your credit report in the last few months, it’s time to request your credit report and scan it closely. Make sure all of the information, from your name and address to your history of credit card payments, is accurate. If you find errors on your credit report, dispute them as soon as possible. Equifax, Experian and TransUnion all offer easy online dispute forms to help you get the process started.
—Don’t reapply right away
Although you might be tempted to reapply for credit right away, remember that multiple hard credit inquiries within a short period of time can bring down your credit score — and potentially make it more difficult for you to acquire new lines of credit. Before you apply for a new credit card, look for a card that’s a good match for your current credit history and credit score. That way, your application will be more likely to be accepted.
—Take steps to improve your score or build 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 quickest way to improve your credit score is to practice responsible credit usage on your existing credit accounts. Make on-time payments, pay off your balances in full whenever possible and avoid maxing out your credit cards.
If you want to build your credit history, consider applying for a secured credit card. Secured cards provide you with a line of credit in exchange for a small, refundable security deposit. They’re also an excellent option for people who don’t yet meet the requirement for more premium credit cards. If you use your secured credit card responsibly, you’ll build your credit history and your credit score simultaneously — both of which will help you the next time you apply for credit.
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