No, being denied for a credit card or loan does not hurt your credit score. But, you will notice a drop in your score. When you request a new line of credit a credit inquiry is pulled to review your credit history and ensure you are credit-worthy. This hard pull will appear on your credit report creating a minor blemish. This is why you DO NOT apply for multiple credit cards in a short time.
Reasons You Could Be Denied Even with Excellent Credit
After years of paying bills on time to improve your credit and maintain an impressive credit score, the last thing you expect is a lender or credit card company denying your credit application. In fact, if that happens, you may even assume there’s been an unfortunate error on the part of the lender or credit card issuer.
However, even people with a credit score solidly in the “excellent” or “exceptional” range of 800 or above could still get denied under certain circumstances.
1. Your income doesn’t make the cut
Even though you have excellent credit, a lender may deny your loan application based on the fact that you don’t meet its minimum income requirements for the amount you’re trying to borrow. Insufficient income can also cause you to be denied by credit card companies, especially if you’re applying for a premium credit card with superior benefits and rewards.
2. You have a spotty employment history
If you have a history of job hopping or long periods of unemployment, that history can put off lenders or other creditors who worry that you will lose or quit your job and be unable to make payments on a loan or credit card.
Many lenders don’t feel comfortable extending an auto or other loan until the applicant can prove at least two years of continuous employment.
3. You recently got a credit card with the same issuer
Even if you have perfect credit, if you recently opened a new credit card account with the same company as the card you just applied for, you may be surprised by an instant denial on the online application or receive one later in the mail.
That’s because some credit card companies may not allow you to open a new credit card if they recently approved you for a different card. With some credit card issuers, you may be approved for the card but not for the sign-up bonus if you received a bonus on another of its cards within a specific period.
To avoid the sting of “How Could You Deny Me?” rejection, always check the terms and conditions of the card and offer for such limitations before applying.
4. You have too much debt
If you’re already deeply in debt with loans and credit cards, those high balances can be a red flag to lenders and credit card companies when weighed against your annual income. In fact, a high debt-to-income ratio could be just the thing that keeps you from being approved for a new loan, credit card, or other line of credit.
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5. Your credit report isn’t updated
Even worse than being denied because you have too much debt is being wrongly denied because your credit report hasn’t yet been updated. For example, if you paid off a credit card with a large balance last week, and it’s not appearing on your credit report yet, the bank or credit card company will think you have more debt than you actually owe.
6. You forgot to “unfreeze” your credit report
If you placed a security freeze on your credit report to stop new credit from being opened in your name as an identity theft precaution, you must contact the major credit bureaus to unlock your credit report before potential creditors can pull your report for review.
To unfreeze or temporarily lift the security freeze on your credit report, you must contact each of the three major credit bureaus – Experian, TransUnion and Equifax – individually before lenders and credit card companies can access your report.
Steps to Take When Your Credit Application is Denied
When a credit card company, bank or other lender denies your credit application, you may be tempted to crawl away and lick the wounds of rejection. You may even feel like giving up on trying to get a credit card or car loan. But you don’t have to let denial get you down for long.
Once you find out why a lender denied your credit application, you’ll have all the information you need to work on improving your credit so you can get approved next time. In fact, being denied credit may be just what you need to get motivated to raise your credit score.
Here are six steps to take when your credit application is denied.
1. Read the denial notice
When a creditor denies your credit application, it’s required by law to send what’s known as an “adverse action” notice.” The creditor is required to include in the letter the primary reasons your application was denied. For example, balances on your current credit cards may be too high, or your credit score might be too low due to poor payment history.
The adverse action notice must also include the name and contact information for the credit reporting agency used and the credit score used to deny credit. The letter must also notify you of your right to obtain a free credit report after denial and explain how to fix errors on the report or add information.
The truth may be hard to face, but at least the adverse action notice lets you know where you stand. Now you can take steps to work on what’s holding back your creditworthiness.
2. Check the application for errors
Just to make sure you cover all bases, take another look at your credit application to make sure all information is accurate. If you don’t have a copy, ask the credit card company or lender for a copy. Then check to make sure you didn’t leave a zero off your income amount or leave out important information that might have made a difference on your credit denial.
If any information on the application that affected the creditor’s denial was inaccurate, ask the creditor if you can submit an application again with corrections. If you find errors that didn’t affect the denial decision, hold off on applying again, since a hard inquiry (what happens when a potential creditor pulls your credit report) could result in your credit score dropping slightly and temporarily.
3. Review a copy of your credit report
Normally, you’re allowed to receive one free copy of your credit report from the credit reporting agency used to deny your application. However, during the pandemic, you can get a free copy of your credit report as often as once a week through April 20, 2022.
Order a free credit report at AnnualCreditReport.com. Then carefully review the report, making sure all information is accurate. Next, assess the areas that need work, some of which may be mentioned in the adverse action letter from the creditor who denied your credit application.
4. Work on improving what’s hurting your credit
Do you have old accounts with late payments on your credit report? Do all your revolving credit balances exceed 30 percent of available credit, so you have a high credit utilization rate? That may seem discouraging, but even the worst credit can bounce back over time.
That’s because negative account information automatically drops off your credit report after seven years. Bankruptcy drops off after seven or ten years, depending on how you filed. You can chip away at high balances until you have a lower credit utilization rate, which should raise your credit score.
It’s never too late to create a budget so you can manage your money better. Then do your best to always pay credit cards and loans on time so your credit can steadily improve as negative payment history from the past eventually drops off.
5. Call the lender
Do you feel like a creditor might give your application a second look if it knew a few more details that show you’re actually a good credit risk? If so, give the credit card company or lender a call, explaining why you paid late four years ago. Maybe you lost your job, had a high amount of medical debt or another reason for those late payments that temporarily stain your credit history.
The outcome may be the same, but at least you’ll know you tried. And who knows? Maybe you’ll get approved after all, even if approval hinges on accepting a lower credit limit or a higher interest rate on the card.
6. Apply for credit that’s within your reach
While you’re working on the credit factors that kept your credit application from getting approved, consider other options. If you were denied because you have a poor payment history or don’t yet have enough credit history, maybe you can apply for a secured credit card. With a secured card, you pay a deposit upfront, and that amount is typically your credit card limit.
If you want to build credit, make a small purchase under $50 each month and pay off the statement balance every month. Soon you’ll have a positive payment history that can raise your credit score. Once you’ve built or improved your credit, you can apply for a non-secured credit card – this time with a better chance of approval.
Some cards are available only to those with excellent credit. So, if your credit score is 700, which is in the “good” range of 670 to 739 and you applied for a rewards card aimed at consumers with “excellent” credit scores of 800 or above, that could be why you didn’t get approved.
If that’s the case, try applying for a card aimed at consumers with “good to excellent” credit. If your credit score falls in the “fair” range of 580 to 669 and you were denied for a card targeting consumers with good credit, your chances are better if you apply for cards specifically designed for those with a fair score.
Get professional help to clean up errors in your credit report.
Article last modified on April 26, 2023. Published by Debt.com, LLC