Reading negative credit card reviews always makes me laugh. There are certainly some cards that deserve bad ratings for legitimate shortcomings such as poor rewards, unfavorable terms or inadequate customer service.
However, the vast majority of negative credit card reviews simply come from people who are angry about having their credit card application denied. Hilariously, in most of these reviews people claim that “they have no idea why they got denied.” Quite frankly, the vast majority of these people are either delusional or have a poor fundamental grasp of how credit works.
Before going into the specifics of why a particular credit card application may be denied, let’s go over some basics about banks.
- Banks want to approve as many people as possible, because more users means more revenue
- Banks do not know or want to know anything about you except your ability to pay off your debts
- Banks are not out to “get” anyone, their only objective is to turn a profit
So with that out of the way, what are the primary reasons that a credit card application will get declined?
1. Bad Credit Score
This is the most straightforward reason for why most people get declined.
Quite simply, your credit sucks. Here’s the PennyJunkies grading system for credit scores:
- <500 Seriously Retarded
- 500-600 – Pretty Retarded
- 600-650 – Possibly Redeemable
- 650-700 – Somewhat Responsible Adult
- 700-800- Responsible Adult
- 800+ – Warren Buffet
Why people with bad credit are surprised by rejections is beyond me. If you have bad credit, it means that you have poor financial management skills. Would you loan money to someone who had no idea how to manage money? I sure as hell wouldn’t. And the banks won’t either.
If your credit is exceptionally bad, you’ll find that banks won’t be willing to extend you any credit at all. In this case, you’ll need to get a secured credit card. A secured credit card is actually the exact same thing as a debit card in the sense that you can only spend money that you have. The difference is that they report to the credit bureaus, and therefore help repair your credit. The idea is that if you pay these off long enough, your credit score will gradually improve until you can eventually get approved for an actual credit card.
2. Minimal or No Credit History
If you have no credit history, you’re probably going to have to apply for a secured credit card or a credit card with a low credit limit. For whatever reason, people are shocked by this.
“I use my money responsibly, I never buy anything I can’t afford because I only use cash, I’ve never missed a bill payment, but the bank is telling me that I’m a credit risk!”
Well of course they are. They’re not actually saying that they think you’re a deadbeat who won’t pay. What they’re really saying is that they have no way of knowing anything about you at all!
Think of it this way. If a complete stranger asked if he could borrow a hundred dollars, would you give it to him? Probably not.
He might be a doctor. He might be a drug addict. He might be the most honest person in the world. But none of this is relevant, because in the end…
You simply don’t know.
3. A Recent Delinquency
A delinquency is when you fail to make a loan or credit card payment on time. For obvious reasons, if you’ve recently failed to make a payment no credit card issuer will want to issue you additional credit.
After all, if you can’t make good on your current payments why would they expect you to make good on additional payments? At this point, your best bet is to simply wait a few months until the impact the delinquency has on your credit score drops. Time heals all wounds, and the impact of a delinquency will diminish eventually.
4. High Credit Utilization Ratio
Credit utilization refers to how much of your existing available credit you’re using.
For example, let’s say you only have a single credit card with a $1000 credit limit. You currently have an outstanding balance of $800. This would make your credit utilization 80%, since you’re using 80% of your available credit.
Ideally, most credit card companies want to see a credit utilization of below 10%. If you’re using too much of your available credit, banks tend to wonder why. After all, if you’re not paying off your existing balances in full, how will you be able to pay off an additional new balance?
This is also the primary reason why most people will advise you not to close old credit cards. When you close an old credit card with no balance, your aggregate credit limit goes down. An obvious consequence of that is that your overall credit utilization goes up (assuming of course that your current outstanding balance isn’t zero). This usually results in a drop in your credit score.
5. Low Income
This is pretty common sense, but many banks won’t give you a credit card if you have low or no income. After all, why would they expect you to be able to pay them back if you’re not making any money?
But most credit card applications don’t actually ask for proof of income. You can write whatever you want as your income. So some people think it’s a good idea to make up a fake number to increase their chances of approval.
Don’t ever do this.
This constitutes bank fraud which is extremely serious and can actually land you in jail. I’ve seen every credit card rewards program there is, and let me tell you that none of them are worth going to prison for.
With that said, banks are extremely lenient in terms of what you disclose as your salary. You can include bonuses, expected side income (provided that its realistic), etc. As long as it’s within 20% of your guaranteed salary you’re probably going to be fine.
But if you say your salary is $100K when it’s actually $25K, don’t complain if you wind up in jail (however unlikely).
6. Excessive Applications for Credit
Many banks will decline you if they see a lot of hard pulls on your credit report. All credit card applications incur a hard pull.
Some people get confused by this because they’ll get something that tells them they are “pre-approved” for a credit card. This doesn’t mean anything. It just means that the bank “thinks” you’re qualified. Once you actually apply they’ll do a hard pull on your account anyway to find out for sure.
Anyways, banks don’t like this because it often means that the applicant is desperate for credit and looking for options. People who are desperate for credit are often in precarious financial situations. People in precarious financial situations often can’t pay their bills.
And thus the bank says, “No card for you!”
7. Too Many Existing Credit Cards
In some cases, people simply have too many credit cards. This is confusing to some because this applies even if all the credit cards have low balances and are being paid off. After all, “If I’m paying all my credit cards on time what does it matter how many I have?”
Well from the perspective of the bank, the idea is that people with lots of credit won’t be able to control themselves. Especially during times of financial crisis. They don’t want you to rack up big bills across lots of credit cards, because this ultimately reduces the odds of them getting paid back.
For what it’s worth, this is rarely invoked nowadays as the reason for rejection. It is roughly equivalent to the “too much available credit” denial in the past, although this reason for rejection is nowhere near as common as it used to be. However, even today people still get declined for simply having too many open credit cards.
8. Bad Previous Relationship
This is another common one that many people don’t seem to get. If you previously had a credit card with an issuer and repeatedly didn’t pay on time, you better believe that it will be harder to get your application approved. People seem to think that they’ll just “forget.” They won’t.
Would you ever lend money again to a person who didn’t pay you back after you previously lent them money? I’m willing to bet you wouldn’t, so why do you expect the banks to?
That’s the obvious one, but there’s another part of this that some people miss. Many banks are now getting wise to people who frequently “churn” credit cards to maximize signup bonus offers. Credit card churning can be very lucrative, and many people employ a strategy where they repeatedly sign up for new cards, obtain the bonus and then cancel the cards before any annual fees come due.
Obviously, this pisses the banks off because those bonuses are meant to win loyal customers. Doing this a few times probably isn’t an issue, but if you’re one of those people who sign up for twenty new cards a year it is likely to get you blacklisted eventually even if you pay every single bill on time.
If someone that legitimately has a 750+ credit score and low utilization complains about getting rejected, this is typically the reason why.
9. Too Young
Another fairly straightforward one. If you’re too young banks are often wary about extending you credit. Because most kids are idiots.
In addition, the Credit Card Act of 2009 prevents banks from giving credit cards to people under 21 without a cosigner or proof of individual income.
So if you’re in this boat, get a job or see if mommy or daddy will give you a hand. But more importantly, why the hell do you need a credit card at this age anyway?
10. Error in Credit Application
Most, if not all, credit card applications will ask for your income. Many of them will also ask for other information such as your mortgage or rent payments. This is a common area where a simple typo can get your credit card application denied.
For example, let’s say you list your income as being $50K a year. You pay $1000 a month in rent. Unfortunately, you accidentally add a zero and list your monthly rent as being $10K.
Well guess what, the bank will instantly decline your application because it’s probably not likely that someone paying over twice their annual income in rent will be financially capable of paying them back.
In this case, a simple phone call and explanation should resolve the issue.
So Can I Do Anything if I’m Declined?
Now that we’ve gone over why you may have had your credit card application denied, let’s quickly over what options you may have if this occurred to you.
The very first thing you should do is to contact your card issuer’s reconsideration department. If you believe you have some kind of extenuating circumstance or legitimate believe that the bank has made an error, this is the department that will help you sort out your issue. You can easily find the relevant numbers through a simple Googl esearch.
Some issuers also don’t like it if you have too many open credit cards with them. For example, let’s say that you have five different Chase cards. Every new card they issue you is virtually no different from them giving you a credit limit increase on your existing cards. For that reason, an issuer may decline you if they believe that your existing credit limit across your existing cards is the maximum exposure they’re willing to tolerate from your credit profile.
In this case, an option that often works is to call the card issuer and to ask them to move available credit from your existing cards to the new card. Using the above example, let’s say you have 5 Chase credit cards with $10K limits. You applied for a new card from Chase and got declined because they don’t want to give you greater than a $50K aggregate credit limit.
Call them and ask if you can reduce the credit limit on two of your five cards from $10K to $5K and to transfer that limit to the new card. If that was the only reason why your application was denied, this method almost always works.
If you got declined because your credit utilization is too high, simply pay off your existing balances and apply again. Keep in mind that paid off balances do not report instantly. Some people make the mistake of paying off their balances and immediately applying for new credit. Make sure you check your credit report prior to applying to make sure that the paid off balances are reflected in your credit report. This is easy to do using free applications like Credit Karma, or simply by using one of your three free annual credit reports.
Finally, if you got declined simply because your credit score is poor, fix your credit score! Banks are not obligated to extend credit to people who represent large credit risks. It’s your responsibility to prove to them that you are a responsible customer who intends to pay back your debts. Keep in mind that this takes time.
Hopefully, you were able to take some useful information out of this information in terms of why your application was denied and what to do about it. If you have any questions, feel free to email me or post in the comments below.