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If you’re among the spurned, don’t fret. A credit card application rejection doesn’t lower your standing as a citizen and doesn’t affect your creditworthiness. (You’ll still have to deal with those pesky hard inquiries, which can knock down your score by a couple of points, whether you’re approved or not.)
What should you do if you’re rejected for a credit card? Maybe try viewing that denial as an opportunity to reevaluate your relationship with borrowing money and what you might do to improve yourself in the banks’ eyes.
The next steps after your credit card application is denied
“Step one is finding out why you were denied,” said credit expert John Ulzheimer, formerly of FICO and Equifax.
Thanks to federal law, the bank (unlike a ghosting Tinder date) must tell you a few things when it rejects you. The card issuer needs to list its major reasons for saying no (or at least explain that you can find out if you ask), the specific credit score it used when deciding to say no, and the name and contact information of the credit bureau from which it pulled your credit report when deciding to say no.
This piece of unpleasant documentation is referred to, in classic impersonal corporate fashion, as an “adverse action notice,” or a denial letter. It looks an awful lot like this.
The wording will be a touch legalistic and not particularly illuminating if you’re unversed in credit jargon, and there are any number of reasons a bank may cite in its letter. For example: “The credit scoring process is complex and uses a variety of factors to determine the score, including payment history, the amount of debt owed, and the length of credit history, just to name a few,” said Capital One managing vice president Jeff Amster.
Understand the denial letter
The reasons a bank may give for its denial are typically circumspect, which makes them less than revealing. Each reason also comes with a corresponding number, or reason code, making the process feel even more robotic. Those reason codes can be revelatory, but you may need a little help.
You can usually find the codes listed near the beginning of your rather terse letter. Go to ReasonCode.org and plug in a code, or start writing out into the search bar the actual rationale the bank used to deny you the card. (The site is run by VantageScore, but that company doesn’t collect or sell any of your data when you use this service.) Learning the reason will give the bank’s denial more context.
For instance, let’s say I received on my denial letter a notation that says “24: Too many highly utilized bankcard or revolving credit accounts.” That explanation may leave most borrowers even more confused. But ReasonCode.org explains that the bank believed I was spending too high a percentage of my credit limit. The site also offers a solution: Keep the spending-to-credit-limit ratio to 30% across my total existing credit limit and each of my individual cards. So if I have a $10,000 total limit, I should charge no more than $3,000 across all of my cards each month and spend no more than 30% of my limit on any card.
Actually read your credit report
Don’t worry, it won’t bite. You’re entitled to a free credit report within 60 days from the credit bureau the bank used to determine your score. (You can also order one gratis from each of the three major bureaus once a year even if you haven’t applied, or been rejected, for a card.) Although getting your report and reading it can seem like a pain, it’s really not all that bad.
Your credit score isn’t immune to garbage in, garbage out—if the information that informs your score is wrong, your score may also be wrong. Scour your credit report in search of any incorrect information, and if you find an error, you can dispute it with the bureaus.
You can also use some free tools to monitor your credit health.
Capital One’s CreditWise offers an easy-to-read 30,000-foot view of the contents in your TransUnion credit report (the three major bureaus each keep a file on you) and then uses that information to give you a credit score from VantageScore. You can see which factors are helping your cause and which are harming it. Credit Karma and Credit Sesame offer similar services.
Likewise, Discover Scorecard provides your FICO score (a more widely used scoring model than VantageScore) and lists the major roadblocks to your score rising.
Ask the bank to take you back
After you’ve digested the denial letter and pored over your credit report for an error, you might try to call the bank to ask it to reconsider your application, especially if there’s a mistake on your report or you muffed your application.
That’s what Wirecutter writer Daniel Varghese did after Barclays rejected his application for the Uber Credit Card for having too short a credit history and too many recent credit inquiries. After a gentle nudge from a colleague, Daniel looked up the customer service number on the card’s website, updated his income information to include some freelance work and a bonus, and then received approval for the card.
Still, think of this as more of a last-ditch effort. When I asked John Ulzheimer whether a bank would reconsider (barring any mistakes on your end or its end), he was pretty blunt.
“Little to no chance,” he said. “There is always a good reason card issuers deny you, and it’s generally that you don’t fit their risk profile. Calling and pleading your case doesn’t change that fact.”
If your call doesn’t do the trick, don’t be afraid to move on.
Know and heal thyself
No card is worth your eternal love.
After you’ve digested your report and reviewed your score (and possibly begged for mercy), you have two tasks: In the short term, you have to find a card you can qualify for that also addresses your needs. Over the long term, you have to prove yourself to be more creditworthy.
“Not shopping around effectively is a problem,” said VantageScore vice president Jeff Richardson. “There are a lot of credit card companies out there that specialize in different types of consumers.”
How you go about a new card to apply for depends largely on your credit profile and score.
If you have very good or excellent credit: After being denied a card, anyone with a credit score of 740 and above, which FICO describes as “very good” or “excellent,” should consider applying for a card that offers value similar to that of the one that denied their application. You likely haven’t had any serious hiccups, at least for a while, and you may qualify for a different premier credit rewards card.
Moreover, you may have been denied for esoteric reasons, such as Chase’s so-called 5/24 rule. So if you are hankering for great dining rewards but were denied for the Chase Sapphire Reserve, for example, consider the American Express Gold Card.
Time is of the essence here. When you apply for credit, the bank reviews your credit report (known as a hard inquiry), which may prompt a temporary ding to your credit score. But if you apply to another card within two weeks, said Richardson, your credit report will show only the one hard inquiry, and you won’t suffer other temporary dings.
However, don’t take this as an invitation to apply for a bunch of cards, as submitting many applications can amplify the hard-inquiry damage to your score.
If you have average credit: If your score isn’t quite as boffo (think 670 to 739), you have a bit of work to do. Heed the reasons on your denial letter and go about amplifying your score. That can mean doing a better job paying your bills on time, reducing the amount of your credit limit you use each month, or simply waiting until your credit profile matures. Look to an issuer, such as Discover, that tends to focus on borrowers with your credit history. (We are especially fond of the Discover it Miles.)
If you have poor credit: Options are more limited for people with scores below 670. FICO says this kind of score demonstrates that you’re a riskier bet than the average borrower, and banks may be unlikely to extend their premier, or even pretty good, cards to you. Fixing your low score will take more time and patience. If you want a rewards card and are closer to 670 than 580, consider the QuicksilverOne from Capital One. If you’re nearing 580, think about the Discover it Secured. But keep in mind that neither card is guaranteed.
There are many fish in the sea (ahem, credit cards on the Internet), and one is bound to be the right fit. You just need the right expectations.
Source: NY Times – Wirecutter
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