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Did you get rejected for that credit card you wanted? Don’t worry. This is something many credit consumers often face. Take this fact: last year, the average rejection rate increased from 6% to 21%, according to the Federal Reserve of New York. Now this won’t hurt your credit score, but do take action to increase your chances of getting approved next time. Here is everything you need to know and the next steps you should take if your application was recently rejected.
What to do when rejected
The first step to understanding why you were rejected is to read the letter from the bank, which will give you a clearer picture of your situation. Since 1970, banks and financial institutions must provide you with a list of the main reasons considered in their decision or a notice stating where to find those reasons. This letter also includes your score at the time of the evaluation and the credit bureau that filed the report. This letter is your first approach to getting approved next time, so take your time and read it carefully. Another important thing is to not apply right away – an adequate waiting period for your next application should be around three to six months from the date you got denied. Use this time to build a favorable credit rating and make adjustments to your credit report.
Main reasons for rejection
There are many reasons why your request might have been denied, but here are the most common:
- Your income is not enough – While your salary might be enough for covering expenses on the credit card, you must provide your monthly payments in your application. Issuers then analyze them to decide if you can withstand the credit line you applied for. People with low income and high mortgage payments are considered high-risk borrowers.
- Your credit score is too low – Credit cards have a minimum credit rating to be suitable for getting approved. It is good to review your credit score before applying to any credit line to know which products you will likely get approved for.
- Derogatory marks. – Derogatory marks such as late payments, collection accounts, and foreclosure make it harder for users to get approved for credit lines. These can stay in your report for up to seven years, but you can file a dispute in case this mark is mistaken.
- You have too many credit card applications – New applications in credit lines generate a hard inquiry on your credit report, which lowers your credit score. Furthermore, when you apply for too many credit lines in a short period, lenders will categorize you as a high-risk borrower.
Boost your score for upcoming applications
Improving your credit score is essentially the most important thing to have greater access to new financial products. Cultivate good financial habits such as making on-time payments to your current credit cards and paying more than the minimum whenever possible.
Other than that, you can also include these tips into becoming a more suitable candidate for banks and lenders:
- List all of your sources of income – Banks and lenders check your wage and compare it against your expenses, so be sure to list all of your sources of income when filling out your application. Don’t forget to include your income from side jobs or freelance gigs you may have.
- Become an authorized user – Think of a person close to you who has good credit management and ask them to include you as an authorized user in their credit reports. You will then be able to benefit from their good habits and improve your chances of approval.
- Lower your debt – Having a high debt-to-income (DTI) ratio will drive you away from the credit lines you are trying to get. An ideal DTI is no more than 36%. This ratio indicates you have a good between your income and debt. So if you have a DTI of 36%, it means 36% of your monthly wage goes to paying off debt each month. This percent is a good benchmark, but the lower, the better.
- Monitor your credit report – Monitoring your credit report while on the journey of boosting your credit score will give you a clearer picture of whether you are getting there. We recommend doing it once a month. It will also help you spot incorrect information from damaging it.
- Apply for secured credit cards – These could be one of your best allies when looking to build on your credit score. They are easier to get approved for and require a security payment that backs you up in case you default on your payments. Usually, the security deposit will be equal to your credit limit. So if your credit card has a limit of $500, you will need to make an initial deposit of the same amount, which will only be reimbursed if the account is closed.