Rejected! What To Do When Your Credit Card Application Gets Declined
So you saw one of the many tempting credit card promotions in the marketplace and decided to bite. To your complete surprise your credit card application was declined. Don’t panic.
There are many reasons why your credit card application may get rejected. Sometimes it’s strictly because of your score, other times it can be based on an issuer’s specific underwriting policy, or it could simply be a typo. Regardless, it’s important to understand why you’ve been rejected, how to fix the issue and what to do next.
Common Reasons Why Your Credit Card Application May Get Rejected
There are many reasons why your credit card application may get rejected:
- Income is too low. Your income may not meet the minimum income requirement for the card. Or your income may be too low relative to your expenses, presenting too much risk.
- Too much unsecured credit line. You may have too many outstanding lines of credit with other credit cards, presenting too much risk.
- Balances are too high. You may have too much outstanding debt with other credit cards, presenting too much risk.
- Utilization is too high. The size of your debt, relative to your credit lines may be too high, suggesting you’re having difficulties paying down your debts.
- You have a current collection. You have a debt that has been charged-off, which you have not re-payed, suggesting you do not repay your debts.
- Recent delinquency. You have a debt which you are late paying, suggesting you have difficulty re-paying your debt.
- Recent charge-off. You recently had a debt charge-off, suggesting you have difficulty re-paying.
- Thin-file or lack of credit history. You do not have significant credit history, or any at all, making it difficult for creditors to assess your potential risk.
- Not at job long enough / unemployed. You moved jobs, or don’t have one, indicating your income may not be stable enough to be relied upon to repay your debt obligations.
- Too many recent applications. You recently applied for multiple credit products in a short period of time, a key trait of those who anticipate, or are in, financial difficulties, and less likely to repay their debt obligations.
- Home ownership. Homeowners, as a group, tend to have more reliable and stable income than renters, and equity to access during financial difficulties. Homeowners have proven to have lower charge-off rates than renters.
- Recent application for a payday loan. Payday loans are considered loans of last resort, and are typically sought by those who are in financial difficulties.
- Recent changes to address. Taken into consideration with other factors, recent address changes could indicate income instability, and thus potential difficulties re-paying.
- Your age. You have to be at least the age of majority in your province of residence.
- Your citizenship / residency status. You have to be a Canadian resident.
What do I do if my credit card application has been rejected?
If you’re credit card application was rejected, we suggest you do the following:
- Call the credit card company: Some issuers are willing to reverse your declined credit card application if you can explain or correct certain factors or assumptions. For example, they may think your income is too low, but you forgot to include the income of your spouse. Call the credit department and see if they’re open to reconsideration before giving up. Regardless, see if they can tell you why you were declined.
- Review your credit report: If you’ve been declined due to credit, it could be for any one of the reasons outlined above. Get a free copy of your credit report to get a clear picture of what lenders are seeing. You may discover a charged-off balance you forgot to pay off and with whom, you may see significant lines of unsecured credit you no longer use that you might want to collapse, etc…You can order your free credit report from Equifax and TransUnion for free by mail, telephone or fax.
- Address your weaknesses: Now that you have a clearer picture as to why you were declined, address each item decisively. You may be able to improve your circumstance quickly. For example, if you have a current delinquency you were unaware of, like an unpaid cell phone bill from a previous provider, pay it off immediately. Other items like reducing your utilization rate or debt to income ratio, may take time. If you mistakenly applied for 6 credit cards at once, you’ll just have to press pause and wait it out a few months.
What should I do if I my credit card application was declined, but I need credit right away?
If your credit card application was declined, and you absolutely need access to credit, you might think a payday loan is your next best alternative. We suggest exploring other options first.
A payday loan could end up costing you between 390% and 599% in interest!!! Whether you’re considering MoneyMart, CashMoney or Mogo, think twice and know you’re alternatives.
Just because your credit card application was rejected by one credit card company, doesn’t mean you’ll be declined by every credit card company. Some lenders have more flexible lending criteria, and have specifically designed credit cards for people with bad credit.
For example, Affirm Financial offers an unsecured credit card for bad credit. If you want to know if you have a good chance of getting approved for an unsecured Affirm MasterCard see if you can answer yes to the following questions:
- Do you own a home?
- If you’ve had a recent bankruptcy or consumer proposal, is your credit score greater than 500?
- If you haven’t had a recent bankruptcy or consumer proposal, is your credit score greater than 600?
- Is your gross annual income greater than $10,000 ($20,000 or more has an even better chance of approval)
- Is your unsecured debt (credit cards, consumer loans) divided by your annual gross income less than 1.5?
- Is your monthly debt payment divided by your monthly gross income less than 65%?
- Is your utilization (unsecured debt/total credit line) less than 90%?
- Do you have an unsettled collection/judgement balance? (answer should be no)
- Has it been more than 5 months since your last delinquency?
- Have you had less than 5 credit inquiries in the last 6 months?
- Have you had a credit inquiry from a payday lender within the last 6 months? (answer should be no)
While interest rates on the Affirm MasterCard aren’t cheap, 29.99% for homeowner and 34.99% for non-homeowners, they’re a LOT cheaper than a payday loan, which typically runs higher than 500%.
Moreover, while a Payday loan will often be viewed negatively by future lenders, the Affirm MasterCard reports like a regular credit card to both Equifax and TransUnion, and as such can help improve your credit score.
Do’s and Don’ts when applying for a credit card
So here are a couple of hard and fast rules when applying for a credit card. Do compare credit cards, check all application requirements, provide accurate information on your applications. Don’t apply for more than 5 credit cards in 6 months, don’t apply for a credit card if you don’t meet the application requirements, don’t apply for another credit card immediately after being rejected.