Top 4 Reasons Why Your Credit Card Application Just Got Denied

Having your credit card application denied is a bit disheartening, especially when you've found what looked like the best credit card for you. But before you give up, you want to get to the bottom of why your application was rejected. Doing so can help you improve your odds of approval next time you apply for credit.

Let's look at four common reasons credit applications are denied.

1. Your credit score is too low

Having a low credit score can make it difficult to get credit. But even if your credit score is good, you may need an excellent credit score -- typically defined as a FICO® Score of at least 740 -- to qualify for some cards that offer generous rewards, like top travel rewards cards.

Lenders are required to tell you if your application was rejected due to your credit score. They'll also need to provide you with the credit score they used and tell you how to obtain the credit report they used to make the decision. Check the report to be sure it doesn't contain errors.

But even if everything looks correct, your credit report still contains valuable information. For example, if there are several recent late or missed payments listed, you may need to work on building up positive history to offset those black marks. Or if the balances on your existing cards are high, work on getting them below 30% of the limit.

If you've been rejected multiple times for credit, consider getting a secured credit card. With a secured card, you put down a security deposit that serves as your line of credit. This makes it easier to get approved because the issuer faces less risk that it won't be repaid.

2. You don't have enough income

Your income doesn't affect your credit score, but banks want to be confident you can afford to repay the money they lend you. That's why when you apply for a credit card, lenders usually look at your debt-to-income ratio, which is the total of your monthly debt payments divided by your monthly income.

For instance, if you earn $5,000 a month and your mortgage payment, car loan, and minimum credit card payment add up to $2,000, your debt-to-income ratio is 40%, or $2,000/$5,000.

You want this number to be as low as possible. Many lenders look for a debt-to-income ratio of less than 36%.

3. You have a thin credit file

Qualifying for a credit card can be tough if you have a limited credit history, especially if you're applying for a credit card that offers generous rewards. You may need to build a history using a starter credit card and apply for a card with better perks later. As you build a positive payment history and your age of credit increases, you'll gradually find it easier to qualify for credit.

4. You've applied for several credit accounts recently

When you apply for credit, a hard inquiry will appear on your credit report. Often this lowers your score by a few points, though it's a relatively minor credit scoring factor. But if you apply for several accounts in quick succession, you could find your application denied.

Too many inquiries can cause a creditor to worry that you're struggling financially. (You typically don't have to worry about this if you're applying for a mortgage or car loan, as FICO will generally assume you're rate shopping and treat inquiries within a 14-day period as a single inquiry.)

Note that being denied for credit isn't what hurts your score. Applying for multiple cards or loans in a short window is what dings your score, regardless of the outcome.

What to do after your application is rejected

Lenders are required to tell you why they turned you down under the Equal Credit Opportunity Act (ECOA). Be sure to look at the reason listed, as well as the relevant credit report if the lender cited credit-related factors in denying your application.

If you have a long credit history but have missed payments or accounts in collection, you may need to focus on building positive history. But if your credit history is limited, you may need to find a card aimed at helping people build credit.