Applying for a credit card is usually a smooth process, but there is always a chance you could be denied. Being denied after applying for a credit card does not directly hurt your credit score.
However, it could be a sign that you need to take a closer look at your credit score and credit report. Let’s explore what could be causing you to be denied in the first place.
Why applying for a credit card can hurt your credit score
A hard inquiry occurs when you apply for a new line of credit. These will impact your credit score immensely. For example, applying for a credit card results in a hard inquiry.
Even so, it should only cause a temporary drop in your score. Typically, the inquiry only drops your score about five points, and it can stay on your credit for about two years.
Why you may be denied a credit card
There are a few reasons why someone might be denied a credit card. For example, having poor or zero credit history can lower your approval odds because creditors could deem you as posing a greater financial risk to them. Here are some additional reasons why you might have your credit card denied.
Missed or late payments
Missed or late payments on other credit cards can negatively impact your credit score. Typically, the late payment will not show up on your credit report until 30 days later. So, even though you’ll want to make your payments on time or even early, being a few days late should not cause harm to your credit report.
Bankruptcies or foreclosures
Filing for bankruptcy or experiencing a foreclosure can cause drastic changes to your credit score. Either of these scenarios could also cause your credit score to drop anywhere from 130 to 240 points depending on what your credit score was prior to the bankruptcy or foreclosure.
Plus, foreclosures and bankruptcies will stay on your credit report for about seven years before they fall off. Seven years might seem like forever, but your credit score can still bounce back afterwards.
Too many hard credit inquiries
It is crucial to remember how many times you have your credit checked, specifically in terms of hard credit inquiries. Multiple inquiries can lower your credit score, which can then cause even more credit card denials. Additionally, be mindful of how often you apply for lines of credit or new services, such as cell phone services and certain utilities.
High credit utilization ratio
Credit utilization is your credit-to-debt ratio. Ideally, you’ll want to keep this number between 1% and 10%. In other words, you do not want to use more than 10% of what you have available.
Utilizing more of your credit lines than that can hurt your credit score. High credit utilization is around 30% and credit utilization this high can make you appear risky to the credit bureaus, causing you to be denied.
How to increase your approval odds when applying for a credit card
There are a number of ways you can increase your approval odds when applying for a credit card.
Monitor your credit
There are many ways to check your credit score. Monitoring your credit will help you stay up to date with your credit score and credit report so that you can have a better idea of your approval odds.
Pay bills on time
Late payments can drop your credit score when they are reported to three three major credit bureaus. Paying them on time can be a big help. Set alarms, sign up for autopay or make notes on your calendar to stay up to date and pay your bills on time every month.
Follow the 30% rule
You do not want to use more than 30% of your credit limit overall or on any one particular card. For example, if your card has a $1,000 limit, you should stay around $300 in total usage.
Don’t apply for more credit than you need
Even if you qualify for a credit card or any other forms of credit, this does not mean that you have to apply. When applying for credit, it is essential to be selective because each inquiry will show up on your credit report, even if you are approved.
Only apply for credit when it’s absolutely needed. That way, you can avoid running into unnecessary lines of credit or inquiries that will lower your score.
Consider a secured credit card
Secured credit cards are a great way to get the experience of a traditional unsecured credit card with the security of not overspending. Additionally, secured credit cards can also help boost your credit score.
Depending on the bank, you’ll essentially have to deposit anywhere from $200 to $500 on your credit card, which then becomes your credit limit. Now, there are no concerns about maxing out your credit card.
Your monthly payments, including any additional fees, will always be reported to the credit bureau. This will, in turn, help you build your credit.
Other options besides credit cards
There are other ways to purchase what you need without using a credit card if you are concerned about being denied.
Work more hours
If you need more cash on hand and a credit card is not an option, see if you can pick up additional hours at work. You might find the extra income from your overtime will allow you to save for the item you need instead of using a credit card.
Ask for a raise
If it’s time, consider asking for a raise at work. Keep in mind that it should not be too soon after receiving your last raise but if you feel you are ready, go ahead and ask.
Ensure you can provide your employer with your accomplishments since your last raise and be prepared to negotiate. Have a number or percentage in mind, but also be prepared for your employer to counter your offer.
MoneyLion Instacash
MoneyLion offers Instacash, which works as a cash advance that allows you to get up to $250. Another benefit of Instacash is that there are no credit checks involved.
Furthermore, there’s no need to worry about an additional inquiry. Once approved, the cash will be deposited directly into your bank account.
Getting denied doesn’t mean you have zero options
There is a close relationship between your credit score and credit report. Things reported on your credit report can affect your score, including when you apply for a credit card.
Getting denied for a credit card does not directly impact your score. The information on your credit report likely caused the denial.
Being denied does not mean you are out of options. Consider working on increasing your approval odds or even other options instead of using a credit card before applying.
FAQ
Does applying for a credit card hurt credit?
Applying for a credit card can cause a small drop in your credit score, but the inquiry usually falls off within two years.
How many credit cards should I have?
There is no magic number regarding how many credit cards you should have at one time. Even so, you’ll want to keep your credit utilization low.
Why did my credit score drop?
Your credit score can drop ever so slightly if you are applying for credit, but it can experience significant drops if you miss a payment or if you have a high utilization ratio.
