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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 as well — 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.
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.
Only the information included on a credit report can impact 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.
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.
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 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.
Here’s a look at a few highlights of what an adverse action letter should generally include if you’re denied credit.
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.
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.
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.
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.
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:
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.
Worried that a credit card denial will hurt your credit scores? Spoiler alert: It won’t. Find out what really happens when credit applications are denied — including what card issuers are required to do and how to hopefully avoid this uncomfortable situation in the first place.
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