What to do when you are rejected for a credit card
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Nobody likes rejection. Neuroscience researchers have studies proving that rejection and physical pain excite the same neurons in our bodies. We know that you were so excited to sign up for this new card and earn a bonus or just start your amazing credit journey after stalking AskSebby on Youtube, but now, it seems like it’s down the drain. Don’t worry, we have got your back. Since analyzing a reason for credit card rejection is very complicated there is a saying in the community known as “Your mileage may vary (YMMV).” So let’s dwell into the actions you can take once you are rejected but remember, YMMV.
Step 1: Know the reason (Why you got rejected for a credit card?)
According to the Federal Trade Commission, the credit issuer is obligated to state a reason for rejecting you. Most of the banks would send out a postal mail or an e-mail to highlight the reason, the credit bureau they used to obtain this information and other details like your credit score.
Reading this notice will not only provide you some insight into reasons but will also present an opportunity to work on some factors of your credit report.
Step 2: Analyze the reason (Understanding the cause)
The most common reasons that banks present for rejection are :
Most big banks like Chase or Citibank like to see atleast an year of credit history before lending credit to new account holders. This is not hard-etched in the rulebook but is one of the most common reasons for rejection.
Although, time machine has not yet been discovered, there is one other way apart from waiting for your credit history age well. That can be building a relationship with the bank by opening a checking/savings account and then asking the banker to see if they can get you approved. Alternatively, you can also look for student cards or secured versions of card.
Anytime you apply for credit card, the banks would do a hard pull or soft pull. A hard pull is reported to the bureau and remains on your profile for 2 years whereas a soft pull is not reported on your credit report. A lot of hard pulls (3 or more but YMMV) in a short duration (within 90 days but YMMV) will raise a red flag in the approval system for a lot of banks. FOr example, some banks like US Bank have such a strict underwriting that any enquiry within last 12 months results in a denial.
As you might have guessed from the previous reason, this one is similar. Just like too many enquiries, too many accounts also increase the skepticism of banks for approving you towards a new line of credit.
This is a complicated way of saying that either your utilization ratio on your current accounts is too high or your income is too low. According to Experian, lenders like this ratio to be less than 35%.
This one is as obvious as it gets. Negative remarks includes late payments, collection amounts, delinquencies, bankruptcy and other court judgements. Since these remain on your profile for more than 7 years, they can be a reason for your rejection.
Step 3: Action (Taking steps to get approved)
Now that we know why you got rejected for a credit card, we can work towards transforming that rejection to an approval. For that the first thing to know is – “Ask and you will receive, and your joy will be complete” (brownie points if you get the reference).
Ask again
Most of the banks have a reconsideration line which deals with denials for lending credit. The representatives of this department will help you know the reasons for your denial and can sometimes overturn the rejection into an approval. Just search for XYZ bank backdoor numbers/ XYZ bank reconsideration line. Remember, it’s always better to do your own research rather than handing out your sensitive information to a stranger whose number was posted by a blog.
Once you dial this number you can talk to the representative to firstly, figure out what they have in mind. They would usually just state one of the reasons written above. Let’s break down how you can tackle each of these –
Although banks do not like to see a lot on enquiries or accounts, they do like customers who will end using their product more than their competition. When asked why you have so many accounts, the best answer is to let the bank know that you churn credit cards for the sign-up bonus (just kidding, don’t ever do that). The best way to justify a huge number of accounts is to let the bank know that you used abc cards and it didn’t really fit your needs. Let them know how their product seems a better fit for you and that you have heard great reviews about the product from your friends. Another way is to let the bank know that you are trying to build a relationship with the bank for long term. Although these might seem great as a reason, remember that YMMV.
This can be justified by letting the bank know why your utilization is high. One of the possibilities is to explain that you recently made a big purchase and have been paying it off and are on track to get rid of these charges soon. If the reason is your income, unless you are a student, you can only convince them by making them believe that the product is a good fit for your spending profile. If you are a student, you can convince them to lend you a smaller limit.
Well this one is tough since you can’t really justify the lack of credit history except wait for your history to age well like a fine wine. But, what you can do is justify that you are trying to build a relationship with the bank. It’s even easier if you are a student. Another alternative is to open a checking account with the bank and apply again after some time since some banks like to extend credit only to people with a significant relationship history with them.
Unfortunately, this is a situation where anything you say might not be good enough to revert the decision since your credit report states otherwise. The best way to deal with this is to wait it out. It’s usually better to have a gap of 4-6 months between credit card applications since this reduces the impact of hard enquiries on your credit score.
Apply for another card / Wait it out
Often times, a reconsideration line might not result in an approval. In this case, we need to head back to the drawing board and start from scratch. Let’s discuss some of the common alternatives:
You might want to consider student versions of cards offered by Bank of America, Capital One, Chase and Discover. Honestly, Discover it student is the best starter card in our opinion. If you are not a student but have a thin profile, it’s better to just wait out before your next card or consider starter cards like, Capital one Platinum, Discover It cashback. Remember, never pay a fees for starting your credit journey.
Consider applying for balance transfer cards. These cards have 0%APR for certain periods of time and offer the opportunity to stop accruing interest on your balance. This advice assumes that you don’t often carry a balance and this is a one off situation. If you are not good at handling credit cards, maybe read some advice from Dave Ramsey but please never pay 23% interest over any charge.
Look into secured cards and credit builder cards like Chase Slate Edge or the Petal card. Reminding you again, never pay a fees to build your credit. Avoid banks like CreditOne (not the same as CapitalOne) and rather go to your local credit unions to see what they have to offer.
Don’t worry. This is not the end of your career and you can always apply again within a few months. Maybe this card was not meant to fit your spending in the first place. Banks like American Express are known for the lavish perks their cards offer but that does not define your success as a person. Having an American Express Black card does not mean that you earn a lot of money. Rather, it just means that you spend a lot of money.
Regardless of what your situation is, remember that this is just one credit card and one rejection. This does not define your ability to manage your finances and will not have any effect on your profile in the long run. A credit card is just a tool to earn cashback while being responsible with your finances. So there is absolutely no problem if you get rejected for a credit card today. Eventually, it will all turn out to be okay.
