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Does Getting Denied for a Credit Card Damage Your Credit Scores?

Rejection never feels good. But if your credit card application is denied, that uncomfortable feeling of rejection may be laced with some other unpleasant emotions — namely worries about your credit scores.

Perhaps you’ve heard that a credit card denial will hurt your credit scores. Thankfully, that is not true.

Keep reading for more details about what actually happens when your credit applications are denied. You’ll also find some tips on how to improve your chances of approval the next time you apply for a credit card.

Credit Card Denials and Credit Scores

Having your application for a credit card denied can certainly be frustrating. However, when a card issuer says “no thanks” to your credit card application it doesn’t hurt your credit scores.

None of your credit reports from Equifax®, TransUnion® or Experian™ include information about approvals or denials for new credit. Since the outcome of your applications doesn’t appear anywhere on your credit reports, it’s impossible for a credit card denial to affect your credit scores in any way.

The application might affect your scores?

The act of being approved or denied for a credit card won’t impact your credit scores. Yet actually applying for a credit card could be another story.

Both FICO® and VantageScore® credit scoring models pay attention to how frequently your credit reports are accessed. This access is known as a credit inquiry.

Some types of credit access, called soft inquiries, don’t matter from a scoring perspective. For example, you can access your own personal credit reports as often as you like and it will never have an impact on your credit scores.

Yet other types of credit access, called hard inquiries, do have the potential to trigger a credit score drop. One example of a hard inquiry happens when you fill out an application for new financing, like a credit card.

Of course, not every hard inquiry automatically lowers your credit scores. Even if your scores do drop after an inquiry, they probably won’t change much. (Inquiries, along with other factors, only influence 10% of your FICO Score. By contrast, payment history influences 35% of your FICO Score.) Just keep in mind that when you fill out a new credit card application there’s a chance you could impact your credit scores negatively for the next 12 months.

Card Issuer Responsibilities When You’re Denied

When a credit card issuer denies your credit card application because of something it saw on your credit report(s), it’s required to send you an adverse action notice. Credit card companies send out adverse action notices, sometimes called declination or denial letters, because two different federal laws require them to do so:

  • The Fair Credit Reporting Act (FCRA)
  • The Equal Credit Opportunity Act (ECOA)

The main purpose of these notices is to explain why the adverse action (like a denial of your credit card application) happened. A card issuer can’t legally deny your application because it doesn’t like you. There has to be a reason, and the law says it has to share that reason (or reasons) with you.

What are the adverse action notice requirements?

Here’s a look at a few highlights of what an adverse action letter should generally include if you’re denied credit.

  • Information about which credit reporting agency supplied the credit report used in your application and its contact information
  • A notice of your right to a free credit report from the same credit reporting agency (if you request it within 60 days)
  • A notice of your right to dispute errors on your credit report
  • Your credit score(s), if used in the application — required since 2011 under The Dodd-Frank Wall Street Reform and Consumer Protection Act which amended the FCRA
  • Credit score reason codes that tell you why your score isn’t higher
  • Specific reasons your application was denied (e.g. credit score too low, information on credit report, etc.) — or at least your right to request the reasons

The FCRA doesn’t have a specific time requirement when it comes to how soon a creditor has to send out an adverse action notice. The ECOA, on the other hand, requires creditors to send out declination letters within 30 – 90 days, depending on the circumstances.

What are reasons your credit card application might be denied?

  • Your credit score doesn’t meet the card issuer’s minimum criteria
  • There’s negative information on your credit report (late payments, collection accounts, bankruptcy, etc.)
  • You don’t earn enough income
  • The balances on your existing credit cards are too high compared with your credit limits
  • Your credit history is limited
  • There are too many recent credit applications on your credit reports
  • You have too much outstanding debt
  • You’re too young (under the age of 18 or under the age of 21 and (a) don’t earn any income on your own and (b) didn’t apply with a co-signer)

What You Can Do When Your Application Is Denied

A credit card denial doesn’t have to be the end of the story. You may be able to get the card issuer to reconsider its decision. If not, you can learn from the experience and figure out how to avoid having your credit card application denied again in the future.

1. Reconsideration

It never hurts to ask the card issuer to take another look at your application. If you receive a credit card denial, you can always call the card issuer to ask for more information. You might find, for example, that your income wasn’t sufficient for approval.

If that happens, you could tell the card issuer about any income sources you may have forgotten like freelance income, retirement savings, or alimony. You can even include household income earned by your spouse, as long as you’ll have access to those funds to pay your bill.

Of course, card issuers aren’t always willing to reconsider their credit decisions. If you receive a second no, it’s probably time to move on to the next step.

2. Fix the problem

The beauty of an adverse action letter is that it tells you why your credit card application was denied. This information is gold. It can help you uncover the specific problems you need to fix to improve your approval odds for a new card in the future. There is, however, a slight catch.

Adverse action notices are form letters that are often full of legal language or hard-to-decipher credit terminology. They’re going to contain a high-level reason (or reasons) for your credit card denial, but don’t expect anything too specific.

An adverse action letter probably won’t say anything like, “You were denied because of these two medical collections on your credit report.” But that’s okay. A declination letter can still point you in the right direction. 

If your credit score was too low to satisfy the lender, for example, you can look at the reasons (provided in your declination letter) that explain why your score isn’t higher.

Setting Yourself Up for Success

There are many reasons why you might want to apply for a new card. From the potential to build solid credit history, to more robust fraud protection, to the possibility of earning great rewards, credit cards can make your life a lot easier.

Before you apply for your next credit card, take a little time to set yourself up for success in advance. You might consider the following:

  • Check your credit reports with all three credit bureaus for errors. (You might get a free credit score from each credit bureau for good measure as well.)
  • Dispute any credit mistakes you discover
  • Pay down credit card balances to reduce credit utilization on existing accounts
  • Ask for a credit limit increase to reduce credit utilization on existing accounts
  • Work to improve your credit
  • Only apply for credit cards you’re likely to qualify for, based on your current credit rating and other factors.

A little research and advance planning can go a long way toward helping you get approved for a new account. Even if you can’t qualify for the premium travel rewards card you want yet, that doesn’t mean you can’t start building better credit now to improve your approval odds in the future.

The Short Version

  • Application inquiries affect credit score. But since the outcome of your applications doesn’t appear on your credit reports, it’s impossible for a credit card denial to affect your credit scores
  • Even if your scores drop after an inquiry, it won’t be by much. Inquiries, along with other factors, only influence 10% of your FICO Score
  • A credit card denial doesn’t have to be the end of the story. You may be able to get the card issuer to reconsider its decision
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