Credit card denial can be disappointing and confusing. Fortunately, credit card issuers must send an adverse action notice within 30 days after receiving a completed application explaining why you were denied. Understanding why your application was denied can help you decide on your next move.
There can be many reasons why your application may be denied, from not meeting credit score requirements to application errors. Here are 10 potential reasons why your application may have been denied and what you can do next.
1. Credit score
Credit card issuers have credit score requirements for each card, and applicants who don’t meet those requirements may be denied. Your credit score is based on factors like credit utilization (how much revolving debt you have compared to your total credit limit), payment history, credit mix and age of accounts. Some factors, like bankruptcy or debt that’s gone to collections, can seriously impact your ability to qualify for a new credit card.
Checking your credit score and credit report before applying for a new card can help you better understand your options.
2. Limited credit history
Credit card issuers may be more likely to deny your application if you have limited credit history. A short credit history isn't necessarily a reflection of your ability to make payments. However, it can be harder for credit card issuers to understand your level of risk with insufficient information.
If you're new to credit, it can typically take about 6 months to receive a credit score after opening your first account. If you’re building credit, it may be worth waiting to apply for a new card or getting a secured card.
3. Debt-to-income ratio
Credit card issuers must assess whether an applicant can afford to repay any debt they take on. If your existing monthly debt payments are too high compared to your monthly gross income (known as your debt-to-income ratio or DTI), that could lead to a denied application.
In general, the lower your DTI, the better. If your DTI is over 30%, it may make sense to take time to pay off debt before applying for another card.
4. Income
Some credit cards may have a minimum income requirement. Credit card issuers want to be sure that you can make monthly payments.
Your income doesn’t just include traditional employment. When you calculate your income, you can include things like:
- Traditional employment
- Self-employment
- Investment income
- Retirement income
- Public assistance
- Alimony
- Child support
If you’re 21 or older, you can include household income, the total earnings of everyone living in the same home.
5. Recent credit inquiries
Applying for a credit card or loan adds a hard credit inquiry to your credit report. These typically stay on your credit report for up to 2 years, and each hard inquiry can have a small impact on your credit score for up to a year. If a lender sees that you've had several recent credit inquiries, they may consider that a red flag.
6. Number of open or new credit cards
Some credit card issuers may consider the number of credit cards you have, including how many of those are new accounts, when you apply. They may also consider the total amount of credit available to you across all cards. If they believe you have too many open or new cards, or too much available credit, they may deny your application.
