If you are approved to get a credit card, you will know immediately, but if not, an adverse letter is sent to explain why the credit card was denied. The letter includes instructions to get a free copy of the credit report if it was used in decision-making.
While waiting for the letter, you should know that nearly a quarter of Americans don’t qualify for credit, and here is why:
1. Unreasonable Balances
Many existing unpaid debts can make it hard to make new payments. If your balances are high, credit issuers may find it hard to approve your applications.
Also, lenders prefer a person who does not exceed their available credit. In addition, when if you have too many inquiries on the credit report for credit cards and loans within a short period, your credit application is likely to be turned down.
2. Having Low income
The income required to acquire a credit card is different for various credit issuers. Lenders always verify your income because people inflate their income, on paper, to look more financially stable.
Credit might be denied if the income you earn is not enough to cover your expenses or if you do not have any income of your own. However, credit card companies do not publish the level of income required; it’s up to you to investigate a credit card that fits your earnings.
Credit can also be disapproved if you have been employed in different places over a short period. Most companies prefer people with a stable work history because if one jumps from one job to another, it demonstrates financial instability.
3. Having a Limited Credit History
A credit application might be denied if you have never owned a credit card and have no history of loan use. First off, if you are new to taking credit, you need an active credit report for the past six months for your credit scores to be generated.
That said, having too many lines of credit can also make one be denied new credit. However, the is no limitation on the number of credit facilities one should have with new credit being at the discretion of the lender.
4. Uncompleted Application
When essential information is missing from the application form, or if there is a major difference between your application and credit report, your application may be disapproved. Some vital information to counter-check includes the date of birth, home address, and residential and work addresses.
At the same time, credit companies also consider your age. If you are below eighteen, they might deny you a credit card. This is because people below legal age do not have stable sources of income; and for those who do, the transaction is backed by adults or family estates.
5. A Charge–off on Credit Report
A charge-off is a balance on a credit card that has gone unpaid for at least six months. This makes your credit report unappealing. Failure to repay a credit card or a personal loan, especially if you had taken it recently, may make a lender deny you credit.
Lenders, including banks, may not trust you enough to approve a credit card unless you settle previous debts. Your last delinquency also affects your credit approval. Why? Recent payment history shows how you’d pay for your new credit facility.
Bankruptcy also makes credit issuers question your ability to pay debts. It shows you are a credit risk and mostly FICO uses bankruptcy as a great determinant of your creditworthiness. In addition, freezing your credit report to protect your finances can also lead to credit disapproval.
Different lenders have varying criteria for credit approval. Nevertheless, the factors that go into proving that you are creditworthy are the same across the board. With the right credit scores, a rich credit history, and an income to support credit, your application is bound to go through.
Note, if you check all the boxes and still get disapproved, the problem could be your timing. The reason is that if a lender is swamped with new applications, they may limit new credit; so, try later or approach a different lender.