Americans apply for credit for a wide variety of reasons, such as to buy a home, car, boat or RV. People also often apply for credit cards, whether a Visa, MasterCard, American Express or store-branded card.
Unfortunately, not every request for credit is granted. This often leads people to wonder, “Why was I denied a credit card?” or “Why can’t I get approved for a credit card?”
Why Can’t I Get Approved for a Credit Card?
There are a number of reasons you may have been denied a credit card. Here are five common reasons for denied credit:
1. Your income is too low. Income doesn’t affect credit scores, but that doesn’t mean it can’t impact credit applications. You could be denied credit if your income is below a certain level or if it’s sporadic — for example, if you’re self-employed or work part-time and your income fluctuates from month to month.
Unfortunately, credit card issuers don’t publish minimum income requirements, which can vary by issuers and credit applicants. 2 Issuers are mainly trying to determine if an applicant’s income will be high enough to enable on-time payments based on the credit limit assigned.
2. You’re overextended from a credit standpoint. The amount of credit you are currently using in relation to your total available credit — or your credit utilization — accounts for up to 35% of your credit score. This is because a high credit utilization ratio indicates to credit issuers that you could miss credit card payments in the future.
If you’re planning to apply for new credit soon, it’s generally a good idea to keep your credit utilization ratio below 30% – with 10% or below being the ideal. This could help decrease the chances of your credit request being denied.
3. You’ve missed payments or filed for bankruptcy. Payment history accounts for up to 40% of your credit score, making it even more important than credit utilization in determining your score. For example, a single 30-day payment delinquency could potentially drop your score as much as 100 points in the short term. Meanwhile, declaring bankruptcy could potentially lower your score by up to 240 points or more. It all depends on how high your score was before you became delinquent or filed for bankruptcy. Typically the higher your credit score, the greater the negative impact.
The good news is that negative items like payment delinquencies and bankruptcies fade over time. Delinquent payments will drop off your credit report after seven years, and bankruptcies drop off after seven or 10 years, depending on the type of bankruptcy.
Keep in mind that recent payment delinquencies are more damaging to your credit than older delinquencies. For example, if you were 30 days late in paying a bill six months ago, this will hurt your credit more than if you were 30 days late paying a bill six years ago.
4. You haven’t established a credit history yet. If you don’t have a credit file, or if your credit file is too thin, then there’s not enough information (called records) for the scoring models to use to provide a credit score.
While some scoring models require six months of activity, VantageScore 3.0 can provide a score with just one month of activity with an active account.
To establish your credit history, you might apply for a credit card. Use it for small purchases, and make your payment on time. Be smart about the amount of credit you use to ensure it’s 30% or less of the credit limit.
5. Your identity has been stolen. Fraudulent credit accounts can negatively impact your credit score, especially if the accounts are maxed out or payments are delinquent. This is why it’s important to review all three of your credit reports to catch any fraudulent activity.
If you see anything incorrect or suspicious, from a wrong name to an account you didn’t open, place a fraud alert and credit freeze on each of your credit reports. You’ll also need to file a dispute with the credit bureaus to have the erroneous information removed.
Regular credit report monitoring is the best way to detect inaccurate information – and protect your credit scores. If you’re not already monitoring your credit report for changes or unauthorized activity, being denied credit is a good reason to start. Take note: checking your own credit reports and scores will never hurt your credit!
Be Proactive If You’re Denied Credit
If you’re denied credit, the credit issuer is required by law to explain why. Don’t hesitate to contact them and find out the reason for the denied credit. This way, you can take steps to be approved the next time you apply.