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10 reasons why a credit card application is denied (and what to do about it)

Getting rejected for a new credit card, for whatever purpose - whether it's to improve your rewards game or to start building your credit history – is a disappointment.

A credit card application may be denied for 10 reasons, the most of which are related to your credit history and debt connection. We go through the reasons why in depth below, as well as some suggestions for what to do next to reduce your chances of getting another credit card refusal.

1. Your credit score isn’t high enough

At Ratehub, we've talked about credit scores a lot. And with good reason: it's a three-digit number utilized by everyone from large banks to landlords to assess your ability to manage borrowed funds responsibly. Consider it a report card for your financial situation.

If you've been turned down for a credit card, it's possible that you didn't have a good enough credit score for the card. Although banks do not say whether a certain credit score is necessary to be accepted for a credit card, the general rule of thumb is that the higher your score, the better.

If you have a fair credit score (620 or less), it's probable that your credit score had a part in your denial. To gain a look into your financial situation, we propose checking your score online (contrary to common assumption, checking your own score will not have a negative influence on your rating).

If you have a fair or bad credit rating, secured credit cards have extremely relaxed approval standards and are meant to help you repair your credit score.

While credit scores are essential, they aren't the be-all and end-all when it comes to how banks evaluate your credit card application. Although having a decent credit score (at least 720) increases your chances of being approved for most credit cards, it is not a guarantee of approval, and even those with exceptional credit scores can be refused.

Your credit score isn't everything, and banks assess applications based on a variety of factors.

2. Too many recent credit applications

Have you lately applied for a pre-approval for a mortgage, a car loan, or another credit card? Or maybe it's all of the above, all at once?

A hard inquiry is made on your credit file every time you apply for a new form of loan or credit. If you make numerous hard inquiries in a short period of time, some banks may view you as a riskier candidate who is anxious for fresh credit and taking on too much potential debt too fast.

Even if you have excellent credit and have never missed a payment, it's ideal to space out your credit applications by a few months and avoid applying for numerous forms of credit in a short amount of time.

3. You have too much existing debt

Do you already have a significant credit card debt (or several cards and loans)? If this is the case, a bank may be hesitant to accept you for a new card, fearing that you won't be able to make another monthly payment, thus putting you at danger of default.

It's worth noting that banks and lenders typically evaluate a high debt load in terms of the magnitude of your debt in relation to your entire credit limit or total income, rather than the actual dollar amount you owe. As a general guideline, you shouldn't be in debt for more than 30% of your overall credit limit or have a debt-to-income ratio of more than 37%.

4. Your income isn’t high enough or is unstable

Banks want to know that you have a steady and adequate income to make at least your minimum monthly payments on schedule. Some premium credit cards even say that you must make a certain amount of money to qualify (for example, Visa Infinite Cards demand a personal income of $60,000, whereas World Elite Mastercards require a personal income of at least $80,000).

You may be labeled as a higher-risk candidate if your income is irregular because you're a freelancer or work on commission, especially if you didn't offer extra paperwork in your application providing specifics about your job or income history (like a Notice of Assessment from your Income Tax Return). Check to see whether the credit card you applied for had a minimum income criteria that you didn't fulfill.

Check to see whether you may submit your total household income instead of just your individual salary when filling out a credit card application. The combined income of you and your spouse (or common-law partner / family member) might improve your chances of getting approved. Meanwhile, if you're a student, make sure to include any regular financial assistance you get from a parent, guardian, or scholarship.

5. You have insufficient credit history

You'll have a small credit file if you're new to credit – or if you've just applied for your first credit card. Simply said, you don't have enough experience managing borrowed funds and making timely payments for the bank to trust you with a new line of credit.

There are several entry-level student credit cards and secured cards available that are created particularly for those who are new to credit.

6. You have a delinquency on your credit file

Maybe it's because you forgot to make a payment. Or because you had a financial setback that resulted in your debt being sent to collectors. Having a delinquent on your credit file, for whatever reason, may have a long-term negative influence on your credit score and make it exceedingly difficult to get approved for practically any unsecured credit card since banks will flag you as a high-risk candidate.

If you do have a delinquent, try to address it immediately with the creditor and pay off or settle any outstanding debts in collections as soon as possible. Once you've resolved the problem, being proactive and contacting credit bureaus directly to see if you can get it removed off your credit file is a good idea.

7. There’s an error on your credit file

If you've recently been denied for a credit card (or several), but you have a good credit score, no debt, and no payment delinquencies, it's worth digging further into your credit history. There might be inaccurate information affecting your eligibility, such as incorrect payment information or accounts that don't belong to you. Any inaccuracies on your credit report are subject to dispute.

8. You made a mistake on your application

While it is now simpler than ever to apply for a credit card, there are always possibilities to make mistakes while filling out your information. An mistake on your application can result in a credit card refusal, whether it was one less digit on your income or incorrect home information.

9. You’re not old enough

You must be of legal age to possess a credit card, just as you must be of legal age to drive a car or consume alcohol. The rules differ per province, and you'll need to be aware of the following:

In Alberta, Manitoba, Ontario, Prince Edward Island, Quebec, and Saskatchewan, you must be at least 18 years old.

In British Columbia, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, and Yukon, you must be at least 19 years old.

10. The intricacies of the underwriting process

The process through which financial organizations analyze an applicant's risk and creditworthiness is known as underwriting. While the underwriting process takes into account all of the aforementioned criteria, the details might differ significantly from bank to bank.

Some banks may have a more strict underwriting procedure than others, requiring longer credit histories, lower loan usage rates, and greater earnings. Applicants having a diverse credit mix and a history of handling several forms of credit may be preferred by some institutions (like a mortgage or at least more than one credit card). Other banks may consider how much you spend on your credit card or investigate applicants with a big number of closed accounts more thoroughly in order to avoid churners who apply for a credit card just for the sign-up bonus and then cancel it shortly after.

The underwriting procedure can take into account a bank's wider commercial objectives as well as the current economic situation. During a significant financial crisis, for example, some banks may tighten lending standards to reduce risk, while others may alter underwriting to increase the number of approvals and expand their total market share.

When it comes to accepting a credit card application, banks take on a lot of risk. Unsecured debt is what credit cards are referred to as. There is no underlying asset that the bank may sell to recuperate part of the costs if a cardholder defaults on their payments. Unlike secured debts, such as a mortgage or auto loan, where the bank might seize the property or vehicle, this is not the case with unsecured debts.

In a nutshell, the underwriting process is very complicated, frequently automated using technology, and differs per bank.

What to do after your credit card application is denied

Don’t apply for another credit card right away

If you've just been turned down for a credit card, it's vital not to panic and apply for another one straight immediately (or worse, attempt to apply for the same one again). Every credit card application will result in a hard draw on your credit report, lowering your score briefly. Applying for several cards in a short period of time might raise red flags with banks, who may interpret it as "credit hungry behavior" and perceive you as a riskier candidate in dire need of additional credit.

It's advisable to spread out your credit card applications so that they're a few months apart.

Contact the card issuer to learn why you were denied

Consider calling the bank directly once you've been advised of your rejection and asking why you were refused. You'll probably get a general explanation, such as if it was related to your credit record, a late payment, or your salary. You might be able to persuade the bank to rethink your application, depending on the bank and the reason for your denial.

Request for a free copy of your credit report

If you've never reviewed your credit report in its entirety (or haven't done so in years), being refused for a credit card might be the push you need to finally do so.

You may check your entire credit report for free once a year from both Equifax and Transunion, the two major credit agencies. Your credit report will include all current and closed credit accounts associated with your name, as well as any outstanding amounts, delinquencies, public records, queries, and more.

Examining your credit report may help you become more aware of what's affecting your credit score and how banks see you, as well as any possible issue areas that may affect your eligibility. It's also a chance to catch any flaws or inconsistencies that might be negatively impacting your creditworthiness. It's always a good idea to keep your credit score and money in mind.

Take steps to improve your credit rating

You can increase your credit rating if you only have a fair or decent credit score, rather than a superb credit score.

Never, ever, ever, ever, ever, ever, ever, ever, ever, ever, ever, ever, ever Keep a close eye on your credit card accounts and make sure you pay your payments on time every month (even making one late payment can seriously ding your credit score). Create a repayment plan if you have a balance to reduce your overall debt load. Check with your bank to see whether you've been pre-approved for a credit limit increase if you already have a credit card (a higher credit limit can actually help improve your credit score). Also, if you find mistakes on your credit report or have taken measures to settle debts with a creditor or collection agency, contact the credit bureaus directly to see whether the delinquency may be rectified or removed from your record.

Apply for the right credit card 

There is no such thing as a one-size-fits-all credit card. While it's tempting to apply for the credit card with the best rewards or the biggest sign-up bonus, the most essential thing is to apply for the credit card that's suitable for you, depending on your spending habits and eligibility.

You'll have a far better understanding of your financial situation once you've verified your credit score and read your credit report. And it might make finding the appropriate credit card a lot easier.

Retail credit cards, such as the Triangle Mastercard from Canadian Tire and the PC Financial Mastercard, are the simplest to get accepted for, even if your credit is just fair. If you have bad credit, a secured card can help you improve your creditworthiness by allowing you to use it responsibly, which will eventually allow you to upgrade to a better card in the road.

Meanwhile, if you were turned down for a credit card while having a high credit score, look for a similar offer from a different bank. You were most likely turned down for a less obvious reason related to the bank's underwriting process.

Ratehub's Credit Card Finder Tool can assist you in selecting the perfect credit card. Canadians who utilize this tool are 30 percent more likely to get approved for a credit card than those who do not.