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Being denied approval for a credit card you’ve just applied for can be frustrating, especially since credit cards can be such a useful tool to help finance your lifestyle, giving you the opportunity to earn rewards and welcome bonuses along the way. It’s essential, however, that people pay off their balances on time and in full to avoid high interest rates or harm to their credit scores.
If you’re in need of a new credit card and aren’t sure how to proceed after you’ve been denied approval, don’t despair. Below, Select explains how your credit score is impacted by your card application and what cardholders should do after they’ve been rejected.
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What happens when you apply for a credit card and get denied?
When you apply for a credit card, issuers examine your creditworthiness by performing a hard inquiry into your credit score, or, in other words, by pulling your credit report from one of the three credit bureaus, Experian, Equifax or TransUnion. According to FICO, a hard inquiry can knock your credit score down about five points.
While a hard inquiry will stay on your credit report for two years, FICO only includes them in the calculation of your credit score for up to one year. Note that new inquiries only account for 10% of the new credit category of your credit score, and regardless of whether you’re approved or denied for a credit card, the hard inquiry itself will appear on your report.
If you’re actively seeking a new credit card, you might want to avoid applying for multiple cards at once. Since each application results in an additional hard inquiry on your credit report, this could indicate to lenders that you’re a potentially risky borrower.
Under the Equal Credit Opportunity Act, creditors have 60 days to provide you with a specific reason as to why you were denied a line of credit. This is known as an adverse action letter. You may be rejected for a variety of factors, such as having a low income, a short credit history or too much credit card debt.
What can you do after you’ve been denied?
After receiving notice about why you were rejected, you’ll want to focus on improving your credit score or finding new credit options, explains Matt Schulz, chief credit analyst at LendingTree.
Sites like Select provide information about what types of credit scores you need to be eligible for certain cards, so you’ll want to do your research before applying for another one. Remember, you can always work on improving your credit score by making payments on time and in full.
Consider a secured credit card
If your credit history is too short or you have a poor credit score, you may want to consider applying for a secured credit card. A secured credit card requires that cardholders put down a deposit, which acts as collateral if they’re ever unable to make payments.
The Discover it® Secured Credit Card is one such option, requiring a security deposit of $ 200. Starting at seven months from account opening, Discover will automatically examine the cardholder’s account to determine if they’re eligible to switch to an unsecured card.
Discover it® Secured Credit Card
On Discover’s secure site
Earn 2% cash back at Gas Stations and Restaurants on up to $ 1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically.
Discover will match all the cash back you’ve earned at the end of your first year
Balance transfer fee
3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms) *
Foreign transaction fee
Call the bank and negotiate
You can also try to negotiate approval by calling the card issuer and speaking to a customer service representative. Note that some issuers might require you to send proof of income, your social security information and your address to verify your identity and information.
There are a number of reasons you may have been denied a new card, even if you’re credit score is high: You might have too much credit with that bank or the bank may have a limit on the number of accounts they’ll issue one customer. If you call the bank’s reconsideration line and give them a detailed and compelling case of why you should be approved (maybe you’re a long time loyal customer who has a great history of on-time payments) they may be able to push through your application.
Your income may be higher than you think
You might also consider including your significant other or spouse’s income on your application, explains Schulz. In 2013, the Consumer Financial Protection Bureau made changes to the Credit Card Accountability Responsibility and Disclosure Act, or CARD Act, a 2009 bill passed by the Obama administration that cracked down on credit card companies’ predatory practices. These changes allowed individuals over the age of 21 to include their significant other’s income on their credit card application.
Consumers over the age of 21 are also allowed to include third-party income on their application as long as they have a ‘reasonable expectation of access’ to that income, says Schulz.
You may also include investment returns, social security payments, retirement distributions and rental property income on your application to help boost your chances of approval.
Use a credit monitoring service
Lastly, you’ll want to take a look at your credit report to make sure the issuer isn’t making a lending decision based on a mistake or other false information that may be on your credit report. Each of the three major credit bureaus – Experian, Equifax and TransUnion – is required to provide consumers with at least one free credit report per year, which you can access through AnnualCreditReport.com.
Credit monitoring services can also track changes to your credit report and credit score and alert you of suspicious activity. While free services don’t tend to offer this as an option, you’ll need to opt for a paid credit monitoring service to manage reports from all three bureaus – fees can range anywhere from $ 8.99 to $ 39.95 per month depending on which one you go with.
Select ranked CreditWise® from Capital One as the best free credit monitoring service and IdentityForce® UltraSecure and UltraSecure + Credit as the best paid service. Both make it easier for consumers to stay on top of their credit scores and credit reports, offering different features to ensure there won’t be any surprises the next time they want to apply for a new credit card.
CreditWise® from Capital One
Information about CreditWise has been collected independently by CNBC and has not been reviewed or provided by the company prior to publication.
Credit bureaus monitored
Credit scoring model used
Dark web scan
IdentityForce® UltraSecure and UltraSecure + Credit
On Identity Force’s secure site
UltraSecure + Credit Individual starts at $ 139.90 / yr and UltraSecure + Credit Family at $ 209 / yr. Click “Learn More” for details.
Credit bureaus monitored
Experian, Equifax and TransUnion
Credit scoring model used
Dark web scan
Yes, $ 1 million for all plans
Terms apply. To learn more about IdentityForce®, visit their website or call 855-979-1118.
For rates and fees of the Discover it® Secured Credit Card, click here.
Editorial Note: Opinions, analyzes, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.