Why You've Been Declined for a Credit Card
A lot of people seem to assume that if they want a credit card, their application will automatically be approved. This isn't necessarily the case as credit card companies will often refuse to give credit if they think that you're going to be a liability when it comes to making repayments. When push comes to shove, they want to know that there's every chance that they'll get back what you owe them and if this looks unlikely, the chances are that they'll see fit to reject your application. If you've been surprised to discover that a credit card application has been declined, one of the following reasons is probably to blame.
Bad credit. If your credit history suggests that you're not the best at making repayments, you're not going to be considered a good candidate for being given credit. In this situation, credit card companies have a very good inkling of what they'll be getting themselves into if they were to approve your application and the picture isn't good. This is one of the biggest factors that is taken into consideration in a credit card application.
You don't have much of a credit history. Not having had the opportunity to demonstrate your ability to handle credit can be just as damning as having bad credit, largely because lenders have no real idea of whether you're a good lending candidate or not. Sure, they can take a chance on you but from their standpoint, stepping into the unknown means that there is always the strong possibility that you'll default on your repayments.
You've recently changed jobs or moved house. Lenders are keen to see that you're in a stable position financially, so you might want to hold off on your credit card application if you've recently moved to a new house or got a new job. Some money experts suggest that lenders prefer you to have been in the same job or house for at least two years before they'll consider you to be a "stable" proposition.
Subsequent credit card applications are likely to be rejected too if you don't take action to change things.
Don't apply again straight away. Every credit application shows on your credit report and too many applications in a relatively short time frame can have a negative impact on your credit score. Space your applications out so that they're less likely to bring your credit score down.
Improve your credit history. If it's bad credit that's costing you, you need to work on getting a better credit score. Paying your bills on time is one of the best things that you can do. Your debt-to-income ratio is also a factor and ideally, you want your debt to stay at a maximum of 15 per cent of your income to convince lenders that you're not too far beyond your means.
Don't close credit lines. While you're obviously looking to reduce your debt, resist the temptation to cancel credit cards altogether. This can be very detrimental to your credit score, especially where older credit cards that you've had for many years are concerned. Contrary to what you might think, your credit score won't actually improve if you do this so there's nothing to gain, but you could still do some damage. Your debt is calculated in relation to your available credit limits so if you close lines of credit, your debt remains the same but your available credit limit is reduced. To give a random example, imagine that you have $20,000 of debt spread across five cards with combined credit limits of $50,000, so you're using 40% of your available credit limits. Say you then decide to cancel one of those cards (which has a credit limit of $10,000) and move the balance across to one of the other four. Your debt is still $20,000 but your combined credit limit is now $40,000 so you're now using 50% of your available credit limit. See the problem? In the eyes of lenders, this change in ratio makes you look more irresponsible when it comes to handling credit.