Denied a Credit Card? Here’s What to Do Next

There’s a silver lining to being denied a credit card (what creditors call an “adverse action”). A denial is a sign that your credit might be weaker than expected. The silver lining is that the decision could turn into a positive for you in the long run. 

Learn what to do once your card is denied, and how to improve your chances of getting credit card approval.

Freedom Debt Relief is not a Credit Repair Organization and doesn't provide, or offer, services or advice to repair, modify, or improve your credit.

What Does It Mean That I Was Denied A Credit Card?

A credit card denial means your lender thinks you’re too risky to give a credit card. 

A credit card denial is based on your application. Lenders use credit bureau data to determine whether you’re likely to pay back the money charged to your credit card. 

When you apply, the credit card issuer reviews your application and credit report. The company reviews many details, most of which can be found on your credit report:

• Your payment history

• Your debt balances

• Your credit limits

• How long you’ve had credit accounts

• Whether your balances are going up or down

• How much your last payment was on your other debts

• What types of credit accounts you have experience with

• Whether you’ve applied for new accounts recently

• Your income if you disclose it (it’s not on your credit report)

From this information, the issuer decides whether to approve your credit card application.

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Reasons Your Credit Card Application Could Be Denied

Low credit score, high debt-to-income ratio, and recent delinquencies or bankruptcies are some of the most common reasons your credit card application could be denied.

Low credit score

It’s possible you just applied for the wrong type of card. Top cards with attractive perks generally require excellent credit. Each lender sets credit score ranges and decides what to consider a “good” or “excellent” score. Generally, most consider a 670 or higher to be good. It’s possible to qualify for a credit card with lower scores, but probably not a top rewards card. 

High debt-to-income ratio (DTI)

Your DTI is how much of your money you spend on debts each month. The formula is: monthly debts divided by before-tax monthly income. To lenders, it’s an indicator of whether you can afford a new payment. A healthy DTI ranges from 25% to about 50%, but the lower, the better. 

Recent delinquencies or bankruptcies

For lenders, few factors are as important as a history of paying bills on time. A recent bankruptcy makes a new credit card approval harder. In these situations, you might have better luck with a secured credit card.  

Factors Lenders May Not Consider

It’s illegal to deny a credit card application based on discrimination. Lenders are forbidden from considering the following factors:

• Race

• Religion

• Gender

• National origin

• Sexual orientation

• Marital status

• Age

• Whether any of a person’s income derives from public assistance

Once you find out why you’re denied, you can better compose your next application.

How To Find Out The Specific Reason For Denial

You have the right to find out why your application is denied. Under the Fair Credit Reporting Act (FCRA), if you ask within 60 days of the denial, the lender must provide the key reasons or inform you of your right to know these reasons, typically within seven to 10 business days. This notice may come via letter or electronically.

If the denial is based on information on your credit report, the lender must do the following:

• Provide the three-digit credit score used in making the decision

• Name key factors affecting your score

• Give you the name and contact info for the credit reporting agency providing the report

• Let you know that you have a right to get a free copy of your credit report from that credit reporting agency within 60 days of the notice

• Explain the process to correct mistakes in your credit report or add information to make the report more accurate

It may be worth asking. When your creditor provides the reason for denying your card, you know exactly where to focus your efforts for approval next time. Building good account management habits may strengthen your credit score long-term, setting you up for financial success.

What To Do If Your Credit Card Application Was Denied

Find out the reasons your credit card application was denied, and use that information to improve your credit situation. You might ask the credit card issuer to reconsider its decision.  

Consider alternative ways to build credit

You can build credit with a secured credit card, a credit builder loan, or as an authorized user on someone’s credit card account.

Secured credit cards: You’ll need to make a security deposit (which becomes your credit limit), but otherwise a secured credit card works like a standard credit card. After a period of responsible use, you can get your deposit back and transition to a standard credit card.

Credit builder loans: These loans help you establish a positive credit history by letting you take on a small amount of debt. As you make on-time payments, with fixed interest, you establish your creditworthiness. The lender deposits your payments in a savings account or certificate of deposit, which you can access once the loan is repaid. This is best suited for those with no credit history or low credit scores. 

Authorized user: If you don’t have much of a credit history, ask a family member or close friend with good credit to add you as an authorized user on one of their cards. The primary cardholder is responsible for paying the bill, but both people get boosted credit if the bill is paid on time and the card isn’t maxed out.

Dispute inaccuracies on your credit reports

You can dispute inaccuracies on your credit report. Errors happen. According to the Federal Trade Commission, one in five people have errors on their credit reports that could affect their scores. Those errors could also affect eligibility for new credit, or for worse terms when credit is approved.

The Consumer Finance Protection Bureau outlines how to contact credit bureaus to report inaccuracies, as well as what you should say to get errors fixed. 

You can contact credit bureaus Equifax, Experian, or TransUnion online, by phone, or by mail.

What your message to credit bureaus should include:

• Your contact information: Full name, address, and telephone number.

• Credit report confirmation number: If available, to help identify your report.

• Details of each error: List each error, including the account number if applicable.

• Explanation of the dispute: Clearly state why the information is incorrect.

• Request for action: Ask for the information to be removed or corrected.

• Supporting evidence: Include a copy of the credit report section with disputed items circled or highlighted, plus copies (not originals) of supporting documents.

Credit bureaus must investigate your dispute, communicate details with the institutions that report to them, and report back to you. 

You can take further action by directly contacting the companies providing the information to the credit bureaus. If your bank reports incorrectly to your credit bureau, you can contact the bank using certified mail, and get a response within 30 days.

Data furnishers must remove incorrect or verifiable information and report changes to credit bureaus.

If all else fails, you can submit a complaint with the CFPB.

Steps to improve your financial situation for future applications

Get started on improving your chances of approval. That usually means improving your financial situation, a task that may be difficult even if it is straightforward.

• Pay all bills on time.

• Add utilities to your credit score. Normally, your cell phone and utility bills aren't included in your credit report. Contact the credit reporting agencies to have these bills added. Paying them on time and in full could help improve your credit standing.

• Improve your credit utilization ratio. If you have credit card debt, prioritize paying it down. Maintaining a low balance improves your credit score.

Lenders perform hard inquiries when investigating your credit details during the application process. Each hard inquiry could hurt your credit score for a bit, temporarily dropping it a few points. It’s usually not a big deal, so long as you’re smart about applications.

To re-apply for cards with the best possible credit score:

• Be strategic: Research and use pre-qualification tools to preview your approval chances. 

• Pay down balances first: Pay down your credit card balances before applying for a new card. Improving your credit utilization ratio also improves your score. 

Hard inquiries matter, but if you apply for new credit sparingly, they have little impact on your credit approval chances. Paying balances on time and reducing credit utilization is the best thing you can do to improve your credit standing and boost your chances of approval. 

Tips To Avoid Credit Card Denial In The Future

Try these moves to get approved when you apply for a new credit card. 

Check your credit report regularly for errors and accuracy

Some credit report errors can hurt your credit score. The major credit bureaus—Equifax, Experian, and TransUnion—provide you with one free credit report every week on AnnualCreditReport.com. 

If you find a mistake, follow the credit reporting agency’s instructions for disputing it. 

Pay your bills on time and keep your debts low

Credit bureaus love it when you pay your credit card bills on time. Over time, on-time payments go a long way to helping you build credit. On the other hand, missed or recent late payments can really harm your credit standing. 

You get credit score points when you have credit and don’t use it. The more debt you carry on your credit cards, the more you risk hurting your score. Maxing out credit cards typically causes major credit score damage.  

Choose credit cards that match your credit profile and financial goals

Choosing the wrong type of credit card, such as one requiring excellent credit when yours is fair to good, could mean you’re denied a credit card. The secondary consequences of denied credit cards are typically minor—i.e., the temporary score drop—but can feel unpleasant.

Research cards and use pre-qualification tools to find cards that fit your credit profile. There are plenty of cards for bad credit. If approved, you can use these cards to build your way up to better financial products.

When Your Financial Situation Needs A Fresh Beginning

Credit card rejections might point to a more serious sign that your financial situation needs attention. If you want to know what other options you have to manage a large debt problem, our Certified Debt Consultants are available to discuss what you can do next. Learn about Freedom Debt Relief’s debt relief program and if it makes sense for your situation.