Q&A Video: What Happens If I’m Denied For A Credit Card?

John Ulzheimer

John Ulzheimer | Q&A Videos

Aug 31, 2015 | Updated Sep 02, 2015

Being denied for a credit card is too bad, but fortunately these denials won’t be reported to the credit bureaus or hurt your credit score.

If you are denied, the issuing bank must let you know why they didn’t accept you, along with some more information about the credit report and score they used.

If you’ve had trouble getting credit cards, try looking into Secured Credit Cards, which require an initial security deposit to open.

Learn what happens if you’re denied for a card in our Q&A video with credit expert John Ulzheimer.

Transcript

Hi, my name is John Ulzheimer, and I’m a credit expert who contributes to CreditCardInsider.com. If you have any questions then please submit them in the comments section below.

Today’s question is this: What happens if you are denied for a credit card?

Well, when you’re denied for a credit card or a variety of things happen or have happened. Generally speaking it’s pretty easy to get a credit card. There’s a fairly low barrier to entry and most people who have anything other than just horrific credit can get some form of a credit card. There’s a wide variety of credit cards all the way to subprime credit cards, and those are for people who’ve got really bad credit, all the way to the super prime credit cards, and those are for people who’ve got fantastic credit. Those are going to be the ones with the really high credit limits.

When you make an application for credit, the credit card issuers pulls your credit report and your credit score. Based on that information, they’re going to either approve the application or they’re going to deny the application, or they may actually counter offer you for some other product that they feel is a better fit for the risk that you pose to the bank.

If, however, they have nothing for you because your credit is just so poor, then they’re going to send you what’s referred to as an adverse action letter, or a notice of adverse action, which is more informally referred to as a declination letter. This is what happens when you’re denied for a credit card.

One of the myths about credit denials is that some record of the denial is reported to the credit reporting agencies. That’s absolutely untrue. There is no section of any credit report, and frankly there has never been a section in any credit report historically, where information about denials is housed. So there is no section that says “John was denied an American Express card in May of 2015.” There is no section, there is no information, it can not be gleaned from looking at a credit report. Impossible.

The notice that they send you, and it’s generally a letter that they’re going to mail to you, has some information on it about the information they used as the basis for their decision. Because the information that was used as a very likely going to be a credit report and credit score, the issuing bank has to disclose to you where they got the information from.

So, if they pulled your Experian credit report and used that as a basis for their decision, they’ve got to tell you that. They’ve also got to give you Experian’s contact information and also let you know that you have the right to a free copy of that report because it was used as the basis for denial. They also have to disclose your credit score, if in fact they did get a credit score and use that as well as part of their decision-making process.

So, again, let’s say they pulled you VantageScore from Experian, and it was 520, and that’s below their minimum standard, and they denied you as a result, they’ve gotta tell you that they pulled your VantageScore and it was a 520. They also have to let you know where you rank relative to other people in the United States so you’ll know “Hey, I rank in the lowest 10% or I rank in the highest 10%,” so it gives you an idea and indication of how you’re performing relative to your peers.

The obligation to send you this letter, or some form of notice that you’ve been denied, is in fact an obligation. It’s not a choice. The Fair Credit Reporting Act requires that any time you’re denied a credit card or any other form of credit based on information in your credit report, which includes a credit score, then the issuing bank or the service provider has to send you this notice. It’s not voluntary, it is in fact a requirement under federal law.

When you’re denied credit it is very likely that you’re going to find out you were denied for credit based on that letter. So it’s very unlikely you’re going to get a call from the bank saying “Hey, we just want to let you know you’ve been denied credit. We’re gonna send you a letter in a few days.”

It’s very likely you’re not going to get any phone call from anybody, you’re just going to get the letter and the letter is going to be the delivery mechanism of the denial related information.

It’s unfortunate; the good news is that you are not precluded from going out somewhere else and applying for credit with another bank and after you are able to improve your score to some extent then there’s nothing to preclude you from applying for credit with the same exact bank, although you may choose to to look elsewhere because you already know that they’ve got fairly rigid standards relative to your credit rating and credit report information.

So if you have any other questions about credit or financial topics then please submit them to CreditCardInsider.com or in the comments section below. Thanks a lot for watching, and have a nice day.

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