Whatever your reason for applying for a new credit card – whether it’s to up your rewards game or get started establishing your credit history – getting denied is a bummer.
There are nine main reasons why a credit card application may be declined, with most relating to your credit history and your relationship with debt. We cover the reasons why in detail below while also sharing a few tips on what to do next to lower your odds of having to face another credit card denial.
1. Your credit score isn’t high enough
We’ve talked about credit scores at length at Ratehub. And for good reason: it’s a three-digit score used by everyone from the big banks to landlords to gauge how responsible you are with managing borrowed money. Think of it as a report card for your finances.
If you’ve been rejected for a credit card, it may be because you didn’t have a high enough credit score for the particular card. Banks don’t explicitly state if a specific score is required to get approved for a credit card, but the general rule of thumb is the higher your score, the better.
If you only have a fair credit score (620 or less), your credit score likely had a direct role in your rejection. We recommend checking your score online to get a glimpse into your financial standing (contrary to popular belief, checking your own score won’t have a negative impact on your rating).
If you do have a fair or poor credit rating, there are credit card products – known as secured cards – that have extremely lenient approval requirements and are designed to help rebuild your score.
It’s important to acknowledge that while credit scores are critical, they’re not the end all and be all of how banks assess your credit card application. A very good credit score (at least 720) will mean you have higher odds of being approved for most credit cards, but it’s not a guarantee of acceptance and even people with excellent scores can get denied.
Beyond your credit score, each bank evaluates applications according to a range of criteria.
2. Too many recent credit applications
Did you recently apply for a mortgage pre-approval, car loan, or another credit card? Or perhaps all of the above, all at the same time?
Every time you apply for a new type of loan or credit, it results in a hard inquiry on your credit file. And if you have multiple hard inquiries within a short period of time, some banks may take it as a sign you’re “credit hungry” and a riskier applicant who’s desperately in need of new credit and taking on too much potential debt too quickly.
Even if you have a great credit score and never missed a payment, it’s a best practice to space out each credit application a few months apart from each other and avoid applying for multiple types of credit within a short period of time.
3. You have too much existing debt
Do you already owe a large debt on your existing credit card (or on multiple cards and loans)? If so, a bank may be more reluctant to approve you for a new card fearing you may not be able to handle another monthly payment and possibly flag you at a higher risk of defaulting.
It’s worth highlighting that banks and lenders don’t generally measure a high debt load in terms of the actual dollar amount you owe, but the size of your debt relative to your total credit limit or total income. As a general rule of thumb, you shouldn’t carry more than 30% of your total credit limit as debt or have a debt-to-income ratio of over 37%.
4. Your income isn’t high enough or is unstable
Banks want to be confident you earn a stable and sufficient enough income to make at least your minimum payments on time every month. Some premium credit cards even explicitly state you need to earn a minimum income in order to qualify (Visa Infinite Cards, for instance, require a personal income of $60,000 while World Elite Mastercards require a personal income of at least $80,000).
If your income is inconsistent because you’re a freelancer or work on commission, you may be flagged as a higher-risk applicant, especially if you didn’t provide additional documentation in your application showing details about your employment or income history (like a Notice of Assessment from your Income Tax Return). You’ll also want to double-check if the credit card you applied for had a minimum personal or household income requirement that you didn’t meet.
5. You have insufficient credit history
If you’re new to credit – or just applied for your first-ever credit card – you’ll have what’s known as a thin credit file. Simply put, you don’t have a long-enough track record of managing borrowed money and making payments on time for the bank to confidently trust you with a new line of credit.
6. You have a delinquency on your credit file
Maybe it’s because you accidentally missed a payment. Or because you hit a financial rough patch that caused your debt to go into collections. Whatever the reason, having a delinquency on your file can negatively impact your credit score for years and make it extremely difficult to get approved for virtually any unsecured credit card as banks will flag you as a high-risk applicant.
If you do have a delinquency, aim to resolve the issue with the creditor directly and payback or settle any lingering accounts in collections as soon as you can. Once you resolve the issue, it can be a smart move to be proactive and contact credit bureaus directly to see if you can have it stricken from your credit file.
7. There’s an error on your credit file
If you recently got rejected for a card (or several, for that matter) but have a great credit score, no debt, and never had any payment delinquencies, it may be worth taking a deeper look into your credit file. There may be erroneous information – like incorrect payment information or accounts that don’t belong to you – that may be impacting your eligibility. You have the right to dispute any errors on your credit file.
8. You made a mistake on your application
While applying for a credit card is now easier than ever, there are still opportunities for making errors when filling out your information. Maybe it was one less number on your income or incomplete residential information, an error on your application can result in a credit card denial.
9. The intricacies of the underwriting process
Underwriting refers to the process financial institutions use to assess an applicant’s risk and creditworthiness. And while the underwriting process takes into consideration all of the factors covered above, the specifics can vary quite a bit from bank to bank.
The underwriting process for some banks may be more stringent than others requiring longer credit histories, lower debt utilization ratios, and higher incomes. Certain banks may prefer applicants with a wider credit mix and a history of managing multiple types of credit (like a mortgage or at least more than one credit card). While other banks may take into account how much you spend on your credit card or more closely scrutinize applicants with a large number of closed accounts to avoid churners who apply for a credit card just for the sign-up bonus only to cancel it shortly after.
The underwriting process can also factor for a bank’s larger business goals and the prevailing economic climate. For instance, during a major financial downturn, certain banks may tighten lending requirements to mitigate against risk while others may adjust underwriting in order to increase the number of approvals and grow their overall market share.
Banks take on quite a bit of risk when it comes to approving a credit card application. Credit cards are known as unsecured debt. If a cardholder defaults on their payments, there isn’t an underlying asset the bank can sell to recoup some of the cost. That’s unlike secured debts – like a mortgage or car loan – where a bank could take back possession of a property or vehicle.
In short: the underwriting process is extremely complex, often automated using technology, and varies by bank.
What to do after your credit card application is denied
Don’t apply for another credit card right away
If you’ve just been rejected for a credit card, it’s important not to rush and reactively apply for another card right away (or worse, attempt to apply for the same one again). Every credit card application will result in a hard pull on your credit file and temporarily impact your score. Applying for multiple cards in a short period of time can also be considered a red flag by banks who may view it as “credit hungry behaviour” and potentially consider you as a riskier applicant who’s desperately in search of new credit.
It’s always best to space out your credit card applications to be a few months apart from each other.
Contact the card issuer to learn why you were denied
Once you’ve been notified of your rejection, consider contacting the bank directly and asking why you were denied. You likely won’t get specifics but a broad explanation – like whether it was relating to your credit report, a delinquent payment, or your income. Depending on the bank and the reason for your rejection, you could also make a case for them to reconsider your application.
Request for a free copy of your credit report
If you’ve never read your full credit report (or haven’t done so for years), getting denied for a credit card may give you the jolt you need to finally cross it off your to-do list.
Both the major credit bureaus – Equifax and Transunion – allow you to view your full credit report for free once a year. Your report will include a complete list of all the active and closed credit accounts tied to your name, as well as any balances owed, delinquencies, public records, inquiries, and more.
Reviewing your credit report can help increase your awareness of what’s impacting your credit standing and how banks view you, as well as the potential problem areas that are impacting your eligibility. It’s also an opportunity to spot errors and inaccuracies that may be unfairly dragging down your creditworthiness. Keeping your credit rating and finances top of mind is always a good thing.
Take steps to improve your credit rating
If you just have a fair or good credit score – as opposed to a great credit score – you can take steps to improve your credit rating.
Avoid ever maxing out your credit card. Diligently monitor your credit card statements and always pay your bills on time each and every month (even making one late payment can seriously ding your credit score). If you’re carrying a balance, create a repayment plan to decrease your overall debt load. If you already have a credit card, check with your bank if you’ve been pre-approved for a credit limit increase (a higher credit limit can actually help improve your credit score). Also, if you’ve spotted errors on your credit report or taken steps to settle debts with a creditor or collections agency, contact the credit bureaus directly to check whether you can get the delinquency corrected or stricken from your file.
Apply for the right credit card
Credit cards aren’t one size fits all. While it’s tempting to apply for the credit card that earns the most rewards or the largest sign-up bonus, what’s more important is to apply for the right credit card for you – based on your spending personality and eligibility.
Once you’ve checked your own credit score and read through your credit report, you’ll have a far better grip on your financial standing. And that can make it a whole lot easier to find the right credit card.
Retail credit cards, like the Triangle Mastercard from Canadian Tire and PC Financial Mastercard, are the easiest type of rewards credit card to get approved for – even if you have just fair credit. If you’ve got poor credit, a secured card has virtually no approval requirements and can help you rebuild your creditworthiness when used responsibly, which will eventually help you upgrade to a better card down the line.
Meanwhile, if you were rejected for a credit card but have a great credit score, search for a similar offering from a different bank. You were likely denied for a more inconspicuous reason relating to the particular bank’s underwriting process.
If you need help finding the right credit card, Ratehub’s Credit Card Finder Tool can help. Canadians who use this tool get approved for a credit card 30% more often than those who don’t.
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