Does Getting Denied a Credit Card Hurt Your Credit Score?
Harrison Pierce is a writer and a digital nomad, specializing in personal finance with a focus on credit cards. He is a graduate of the University of North Carolina at Chapel Hill with a major in sociology and is currently traveling the world.
At a Glance
Getting denied a credit card is a frustrating experience, but it is not the end of the world. If you understand why you got denied and how to improve your chances of getting a card in the future, you can implement healthy financial strategies in your day-to-day life. Although a credit card denial can temporarily lead to a drop in your credit score, it should not be a substantial drop and should correct itself in no time.
What is a credit card?
A credit card is a type of payment card that allows the cardholder to borrow funds from the card issuer up to a certain limit to make purchases, pay bills, or withdraw cash. Credit cards charge interest on the unpaid balance if the balance is not paid in full each month. They also often charge fees for various services, such as cash advances, balance transfers, and foreign transactions. Credit cards can be a convenient way to make purchases and access funds, but it is essential to use them responsibly by paying the balance in full each month and not exceeding the credit limit.
When can you be denied a credit card?
There are several reasons why a person might be denied a credit card. Some of the most common causes include having a low credit score, having a history of not paying bills on time, having too much debt, and having a limited credit history.
In general, credit card issuers are looking for applicants who have a good credit score and a history of managing credit responsibly. It may be more difficult to get approved for a credit card if you have a low credit score or a history of not paying bills on time. Similarly, if you have a lot of debt or a high debt-to-income ratio, credit card issuers may be hesitant to approve your application because they may view you as having an increased risk of default. Finally, if you have a limited credit history, it may be harder to get approved for a credit card because the issuer does not have enough information about your creditworthiness to make an informed decision.
1. Insufficient or low credit score
A credit score is a three-digit number used to represent an individual’s creditworthiness. It is based on information from the person’s credit report, which records their credit activity and history. Credit scores typically range from 300 to 850, with higher scores indicating a better credit history.
If you have a low credit score, you may be denied a credit card because credit card issuers view you as a higher risk for default. You may be more likely to miss payments or default on your credit card debt, and the issuer may be hesitant to take on that risk. Some credit card issuers have minimum credit score requirements for their products, and if your score is below the minimum requirement, you may be automatically denied the card.
It is difficult to say precisely what is considered a low credit score, as different lenders and credit card issuers have criteria for evaluating creditworthiness. However, a credit score below 670 is generally considered a “fair” credit score, and it may be more challenging to get approved for credit cards with this score. A credit score below 580 is generally considered a “poor” credit score, and it may be tough to get approved for credit cards with this score.
Related: What Is a Bad Credit Score?
2. Lack of credit history
If you have a limited credit history, getting approved for a credit card may be more complicated because credit card issuers do not have enough information about your creditworthiness to make an informed decision. Credit card issuers generally want to see a history of responsible credit management. If you have not had the opportunity to establish a credit history, it may be more challenging to demonstrate your creditworthiness.
There are a few ways to build a credit history if you do not have one. One option is to get a secured credit card, a type of credit card backed by a security deposit that you provide. This can be a good option for people just starting to build their credit because it allows you to establish a credit history without taking on too much risk. Another option is to become an authorized user on someone else’s credit card. This means you can use someone else’s credit card, but you are not responsible for paying the bill. This can be an excellent way to build a credit history if you cannot get approved for a credit card.
3. Credit report errors
Credit report errors can lead to a denial of a new credit card in several ways. For example, if an error on your credit report indicates you have a lower credit score than you do, the credit card issuer may believe that you are a higher credit risk than you are and deny your application. Additionally, if there is an error on your credit report that indicates you have a lot of outstanding debt or a history of late payments, the credit card issuer may be less likely to approve your application.
Another way that credit report errors can lead to a denial of a new credit card is if the credit card issuer sees inaccurate information on your report that makes them question your identity. For example, if your credit report shows that you have an address or employer you don’t recognize, the credit card issuer may be concerned that you are trying to use someone else’s identity to apply for a credit card. Some errors can also cause your interest rate on a credit card to be higher than it should be. This can increase the cost of your credit over time, making it more challenging to manage your debt.
It’s a good idea to check your credit report regularly to ensure its information is accurate and up-to-date. That way, if you find an error, you can correct it before applying for a new credit card. If you suspect an error on your credit report that has led to a denial, you can dispute with the credit bureau about the mistake, and most often, they will investigate it and get it corrected.
Related: Can Disputing Credit Report Hurt Your Credit?
4. Irresponsible card usage
Irresponsible credit card usage can lead to being denied a new credit card in several ways. One of the most significant factors that credit card issuers consider when evaluating a credit card application is the applicant’s credit history and payment history. If you have a history of making late payments or missing payments on your credit card, this can indicate to the credit card issuer that you may be a high-risk borrower and unable to make your payments on time in the future.
Another way that irresponsible credit card usage can lead to a denial of a new credit card is if you have a high level of outstanding debt. Credit card issuers want to see that you can manage your credit responsibly, which includes keeping your overall debt levels low. If you have a lot of outstanding debt, this may indicate to the credit card issuer that you cannot manage your debt responsibly, and they may be less likely to approve your application.
5. High credit utilization ratio
Credit utilization is the ratio of how much credit you are currently using compared to your total available credit. Credit card issuers closely watch this ratio because it can indicate how much debt you are carrying and how much additional debt you may be able to take on.
A high credit utilization ratio can indicate to the credit card issuer that you are using a large portion of your available credit, making them believe you may struggle to manage your debt. If a credit card issuer sees that you have a high credit utilization ratio, they may think that you are more likely to miss payments or default on your debt in the future. As a result, they may be less likely to approve your application for a new credit card.
A high credit utilization ratio can also negatively impact your credit score, making it harder to get approved for a new credit card. Credit scoring models often consider credit utilization, and a high ratio can negatively affect your score.
It’s a good idea to keep your credit utilization ratio as low as possible. Generally, it’s recommended to keep your credit utilization ratio below 30%. It is also a good idea to keep in mind that different credit score models may have different thresholds for what is considered “high,” so you should check what the specific credit score model you use considers high. Lowering your credit utilization can show the credit card issuer that you are using credit responsibly and will likely make payments on time.
6. Missed or late payments
Missed or late payments can significantly impact your ability to get a new credit card. Credit card issuers use your credit history and payment history as one of the primary factors to evaluate your creditworthiness when you apply for a new credit card.
If you have a history of missed or late payments, this can indicate to the credit card issuer that you may be a high-risk borrower who cannot make your payments on time. Credit card issuers may see this as a sign that you may not be able to make payments on your new credit card in the future and may be less likely to approve your application.
Additionally, missed or late payments are recorded on your credit report, which can harm your credit score. A lower credit score can also make getting approved for a new credit card more challenging, as credit card issuers may see you as a higher risk.
A pattern of missed or late payments can also impact the interest rate you may be offered. If a credit card issuer sees that you have a history of making late payments, they may believe you are a higher risk and offer you a higher interest rate.
It’s vital to make your payments on time and avoid missing as much as possible. This will help you maintain a good credit score and make it more likely that you will be approved for new credit cards. If you are having difficulty making payments, it’s best to reach out to your credit card issuer to discuss your options before you fall behind.
Learn more: Late Payments on Your Credit Report
Will getting denied for a credit card hurt your credit?
Applying for a credit card does not hurt your credit score. When you apply for a credit card, the issuer will perform a “hard inquiry” on your credit report, which may result in a small temporary drop in your credit score. However, this drop is usually only temporary, and your score should bounce back within a few months.
If you are denied a credit card, it is generally not because of the credit inquiry itself but because of the information that the inquiry revealed about your credit history. In other words, being denied a credit card is usually not a direct result of the credit inquiry but rather a result of the issuer’s evaluation of your creditworthiness based on the information in your credit report.
It is crucial to note that applying for multiple credit cards quickly can be a red flag to credit card issuers and may harm your credit score. This is because it may suggest to the issuer that you are having financial difficulties or are taking on too much credit. To avoid this, it is generally a good idea to only apply for credit cards when needed and to be selective about the cards you apply for.
How to improve your chances of approval for a credit card?
There are several things you can do to improve your chances of approval for a credit card, like checking your credit score and credit report, paying your bills on time, reducing your debt, applying for secured cards, or getting a co-signer.
1. Monitor your credit
Credit monitoring is a service that allows you to track changes to your credit report, so you can stay on top of your credit history and act when necessary. It can include notifications of new credit accounts opened in your name, changes to your credit score, and alerts for suspicious activity, such as possible identity theft
Credit monitoring can be helpful when you’re applying for a new credit card. By regularly monitoring your credit report, you can identify and correct any errors or inconsistencies that may negatively impact your credit score. This can help you to improve your credit score and increase your chances of getting approved for a new credit card.
Additionally, credit monitoring services can alert you to suspicious activity on your credit report, such as unauthorized accounts or hard inquiries. These alerts can help you quickly detect and report identity theft, saving you time and hassle in the long run. If you suspect identity theft, you can immediately report it to the credit bureaus and the authorities.
Credit monitoring can alert you to new credit accounts opened in your name, which can help you stay on top of your credit history. If you notice an account you didn’t open, it may indicate identity theft and should be reported immediately.
It’s essential to note that credit monitoring is different from credit reporting. Credit monitoring is a service you pay for that alerts you when something changes on your credit report. Credit reporting, on the other hand, is the process of obtaining your credit score and report from one of the credit bureaus. So, you can choose to monitor your credit score and report for free or for a small fee as well.
Learn more: What is credit monitoring?
2. Review your Adverse Action Letter
An adverse action letter is a letter that a lender must send to you if you are denied credit, including a credit card. The letter will explain the reasons for the denial and provide information on obtaining a copy of the credit report that the lender used to make its decision.
The letter will provide specific reasons for the denial, such as a low credit score, a high debt-to-income ratio, or a history of late payments. Ensure you understand the reasons for the denial so you can address them.
3. Don’t reapply immediately
If you’ve been denied a credit card, waiting before you reapply is generally recommended. Taking the time to commit to bettering your credit score can help give you resources and solidify a plan of action. Depending on how your credit report looks, it’s usually best to wait a minimum of three months or even longer if possible. Make sure you review your credit file during this time and look for any areas that may have contributed to being denied. If there are errors, work diligently to resolve them so that when the time comes to reapply for a new credit card, you have taken all the necessary steps to put yourself in the best position for approval.
4. Make timely bill payments
Making timely bill payments is a vital factor that can help you get approved for a credit card in the future. One of the key factors that credit card issuers consider when evaluating a credit card application is the applicant’s credit history and payment history.
If you have a history of making timely payments on your bills, this can indicate to the credit card issuer that you are a responsible borrower who can manage your debts. This can make you a more attractive candidate for a credit card, and they may be more likely to approve your application.
A good payment history also contributes to a good credit score. Payment history is the most significant factor in calculating credit scores. Therefore, making timely payments on your bills can help improve your credit score and make you a more attractive candidate for a credit card in the future.
Additionally, making timely bill payments can help you avoid late fees and penalties, which can add to your debt and make it harder for you to manage your finances. You can avoid those additional costs by making payments on time and controlling your debt.
5. Consider a secured credit card
A secured credit card is a type of credit card requiring a security deposit before the card is issued. The deposit acts as collateral for the credit card issuer and guarantees that the cardholder will make the necessary payments on the account.
Secured credit cards help people with poor credit or no credit history establish or rebuild their credit. These types of cards are considered less risky for the credit card issuer, which makes them more likely to approve applications from people with poor credit.
When you apply for a secured credit card, the issuer will require you to make a security deposit. The deposit will usually equal the credit limit on the card, but it can vary depending on the issuer.
After the security deposit is made, the credit card issuer will issue you a credit card that can be used just like a regular credit card. You can make purchases, and as you make payments on time, the credit card issuer will report your positive payment history to the credit bureaus. Over time, this can help improve your credit score and make it easier for you to qualify for other types of credit, such as unsecured credit cards.
Secured credit cards will also have fees and interest rates like other credit cards, so it’s important to read the terms and agreements carefully before you apply. Additionally, many secured credit card providers offer the opportunity to convert your account to an unsecured card after a certain period and subject to specific credit requirements being met.
5. Become an authorized user
Becoming an authorized user of someone else’s credit card can improve your chances of getting a credit card in several ways. As an authorized user, you will have access to the credit limit on the account, and you will be able to make purchases using the card. This can be helpful if you are trying to establish a credit history or rebuild your credit after past credit problems.
If the primary cardholder has a good credit history, being an authorized user can help boost your credit score. This happens because the account information, including payment history and credit limit, will be reported to the credit bureaus and reflected in your credit report. This can make you a more attractive candidate for a credit card issuer when you apply for a new credit card. Because you have a good credit score, they may be more likely to approve your application.
Additionally, becoming an authorized user on someone else’s account can allow you to learn responsible credit habits. Observing the primary cardholder managing the account, paying on time, and keeping credit utilization low can teach you good practices and improve your chances of getting approved for a credit card on your own.
Also, it’s crucial to note that not all credit card companies report authorized user accounts to credit bureaus, so be sure to check with the credit card issuer before becoming an authorized user to make sure the account will be reported to the credit bureaus.
Applying for a credit card and getting rejected can be disappointing, but it’s not necessarily bad for your credit score or long-term financial health. The hard inquiry made when you apply for a credit card can negatively impact your credit score, but it’s usually temporary, and your score will bounce back within three to six months.
However, if you apply for multiple credit cards in a short period and get rejected, it could be seen as a red flag to lenders that you are desperate for credit or having financial difficulties. This could have a more negative impact on your credit score. It’s recommended to space out your credit card applications and avoid applying for too many credit cards in a short period.
It’s also important to consider why you were denied the credit card. If the denial is related to your credit history, such as late payments or high credit utilization, it’s a good idea to address those issues and improve your credit before applying again. You can get a free credit report from the major credit bureaus to understand your current credit standing.
If you get denied, it’s a good idea to reach out to the credit card issuer and ask for the specific reason for the denial in writing. This will give you an idea of what you can work on to increase your chances of getting approved.
The effect that a credit card denial can have on your credit score depends on several factors, including your current credit score and the reasons for the denial.
A credit card denial doesn’t directly affect your credit score. However, the hard inquiry credit card companies make when you apply might do this. A hard inquiry is when a lender looks at your credit report as part of the application process. Hard inquiries can have a slight negative impact on your credit score, usually a few points, however, it’s temporary, and your score will bounce back within 3-6 months.
However, if the denial is due to something related to your credit history, such as late payments or high credit utilization, this may have a more significant negative impact on your score. It’s essential to note that credit scores are not one-dimensional, and even if you are denied for one credit card, it’s still possible to be approved for other credit cards or loans in the future, especially if you take steps to address the reasons for the denial and improve your credit.
If you want to understand better what’s impacting your credit score, you can request a free credit report once a year from the major credit bureaus – Equifax, Experian, and TransUnion.
Yes, even with a high credit score, you may be rejected for a credit card. A credit score is one factor when a lender decides whether to approve a credit card application, but it is not the only factor.
Some other factors that can be considered include:
- Your income and employment status
- Your outstanding debts and credit utilization ratio
- Your credit history, including the length of time you’ve had credit and any past bankruptcies or delinquencies
- The type of card you are applying for and your credit limit
- The issuer’s internal approval criteria and policies
It’s worth noting that every lender has their approval criteria, so even if you are denied one credit card, you may be approved for another. If you are denied a credit card, the lender must provide the reasons for the denial in writing, so you can understand why your application was rejected and what you can do to improve your chances in the future.