Credit Cards

5 Reasons Your Credit Card Application Got Rejected

5 Reasons Your Credit Card Application Got Rejected

Joanne Poh

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Like those other obsolete symbols of wealth the Vertu phone and the Prada nylon backpacks ah lians used to carry, credit cards were once regarded as some kind of status symbol back when someone invented the concept of the five Cs.

Which is actually quite weird, come to think of it, because these days credit cards have fallen into the hands of bargain hunters and frugalistas (guilty as charged) who obsessively calculate cash rebates and rewards points.

So we completely approve if you’re dying to get in on the fun. But what happens when your credit card application gets unceremoniously rejected?

Here are some of the most common reasons your credit card application has been flung into the incinerator, and what you can do about it.

  

1. You recently applied for multiple cards

Once you realise that credit cards can actually save you hundreds of dollars a year, it’s only natural to go a little crazy and start applying for stacks of cards—one for grocery shopping, another for petrol discounts, another for online shopping, another to dig the dirt out from under your nails and so on.

Each time you apply for a credit card or a loan, the banks will check up on you by sending an enquiry to the credit bureau to make sure you’re the sort of person who’s able to repay your debts. Next thing you know they’ll be googling your Facebook profile.

The problem is, every time an enquiry is made, your credit score takes a little hit. It doesn’t seem fair since you haven’t incurred any actual debt, but banks get suspicious anyway, just like parents get suspicious if their kids’ school principal calls them up just to say hi.

On the bright side, these blows to your credit score are relatively light and should eventually go away.

Solution: If you’ve recently applied for several credit cards or any kind of loan, wait a couple of months and then try applying again.

2. You’re using too much of your available credit

Even if you’re not technically defaulting on your loans, if you use too much of your available credit each month, banks will be reluctant to lend you more. Would you lend money to a friend who already owed five other friends $5,000 each and seemed to be addicted to shopping? Exactly.

It’s generally best to ensure you use no more than 30% of the credit extended to you by each credit card. This means you should use no more than $3,000 on a card with a $10,000 credit limit. Once you reach 50% on any one card, your credit score takes a serious hit.

If you have ten credit cards but only use one of them, on which you have reached 50% of your credit limit, your credit score will suffer regardless of the fact that your other nine credit cards are collecting dust in your wallet. In such a scenario it would be wiser to spread out your expenditure over several cards.

The amount of credit you’ve used in total as a fraction of the sum of all the credit facilities extended to you also matters.

In short, letting your debt balloon from month to month is going to hurt your chances of getting another credit card application approved.

Solution: Pay down as much debt as you can, ideally to the point where all your cards have a balance of $0. Wait some time for your credit score to improve and then apply again.

3. Your salary is too low

In case you’re wondering how these rectangles of plastic managed to become status symbols, it’s because you need to satisfy a minimum salary before you can get one.

So that guy in the suit who’s been impatiently waving his credit card in the air actually wants you to notice that his is an invitation only credit card for people who earn at least $150,000 a year.

There could be many reasons why you might not be able to satisfy the salary requirements. Maybe you’re on sabbatical for a year, or perhaps you’ve just left your job to become a stay at home mum. Whatever the reasons, you’re stuck for now. 

Solution: If you don’t currently satisfy the salary requirements for your desired cards, apart from waiting until your salary increases, one thing you can do is to ensure you pay all your existing bills in full each month.

Keep this up and it’s highly likely you will start receiving invitations from banks to sign up for certain credit cards (though perhaps not the ones you have your eye on). As an invited cardmember, you won’t have to submit proof of income documents.

4. Your account age is too young

While credit card accounts look and taste nothing like fine wine, they do get better with age.

Your account history affects your credit score, and holding on to a credit card that you’ve been faithfully paying off all the balances on for years actually improves your credit score.

If you have any long standing credit cards that have outlasted many of your human relationships in real life, don’t dump them before you apply for another credit card as all the good memories will be gone with the tide.

Solution: Unfortunately, there’s nothing you can do to length your account age but wait.

5. You’re about to go bankrupt

If bankruptcy proceedings have been started against you, your credit score is already wrecked. None of the above tips will be able to help you at this point.

Solution: Instead of trying to apply for credit cards (seriously?!), you should probably concentrate on trying to avoid bankruptcy by negotiating a private arrangement with your creditors, entering into a voluntary arrangement administered by the court or participating in a Debt Repayment Scheme.

Have you ever had a credit card application rejected and did any of the above scenarios apply to you? Let us know in the comments!

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Joanne Poh

In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.

  • Samuel Chua

    how long does it take for credit score to improve? Caught up in a debt at least 3 years back with some banks but eventually did full settlement with all the banks.