How to handle your secured credit card application denial

How to handle your secured credit card application denial

People with a poor credit score or having a zero credit history, have very little chance of getting a credit card. In that case, they can apply for a secured credit card so that they can manage their own expenses. The secured credit card may also help them to build a credit score.
But a secured credit card isn’t available free of cost. A consumer must provide a cash deposit as collateral for the credit card account. Technically, the credit limit of this card is equal to the amount of security deposit. Sounds neat, right?
But do you have any idea that credit card companies also may deny your secured credit card application? I guess not.

If your secured credit card application gets denied, the first thing that’ll come to your mind is – Why your application was denied? You are ready to put a good amount as deposit, but still you are not getting approved. What would be the reason? Think wisely.

Your application might have been rejected due to several unforeseen circumstances that you didn’t know. So, if you want to make things right, first you have to find those reasons and take steps to change the scenario before you apply for the next card.

The reasons behind secured credit card application rejection

There are a few core reasons that your application for a secured credit card was denied. Here are a few of them:

1. History of default payments

If the credit card company notices that your credit report has a history of missed payments, they might hesitate to allow you even a secured card.

2. Too much outstanding debts

If you have too many outstanding debts, it might be an indication that you are financially unstable to pay off debts, which can be a red flag to a few credit card issuers.

3. Not enough income

Card issuers may check your affordability to pay off bills, even if you are applying for a secured credit card. If you don’t have enough income, they may doubt your ability.

4. Bad employment history

The situation is similar just like the previous issue. If you have a bad employment history, the lender might think that you may lose your job at any point in time. Due to that reason, you may also not be able to pay your bills.

5.Your application was missing something

Complete your credit card application properly if you deliberately skip a few information. Credit card companies need detailed information about you. So, if you hide anything important from them, your application might get rejected. In this case, you might have to reapply with all the details.
Don’t forget to check minor spelling error or a wrongly placed phone number. Always make sure all of your submitted data is correct before applying for a secure credit card.

6. Multiple inquiries

If you search for too many secured credit cards, multiple hard inquiries within a short period may hurt your score. This may decrease your credit score or lenders might think that you are depending on credit more than you should.

7. Bankruptcy

If you have filed bankruptcy previously, credit card providers may consider it as a sign that you are unable to pay bills and unable to take that risk.

How to find out why your application was denied

It is your legal right to know why your application was denied. You can know it within 7 to 10 days of your rejection. You will get an adverse action letter from the credit card company, where you have applied for a secured credit card. The letter should explain the reason behind your denial.

The next thing you must do is to check your credit reports with Experian, TransUnion, and Equifax. Get your credit report from each bureau per year absolutely free. Check credit reports and find out errors that may have caused your application to be rejected. As soon as possible, dispute the errors, and solve the issue with each credit agency.

It is important to improve your credit before you apply for a secured credit card.

Tips to improve credit before reapplying for a secured credit card

Building and maintaining a good credit score will be a never-ending process. It takes long term commitment, hard work, patience, proper financial planning, and a strong mindset to increase your score and build a decent credit. This is how you can get started:

Try to pay your bills on time –

Make on time payments for all of your bills. This may include secured credit cards, your utility bills, your phone bills, and others. Consumers normally apply for a secured credit card to improve their credit. But their credit score can be harmed if they do not pay the bills on time. If you miss your secured credit card payments, it will reduce your card’s security deposit. On the other hand, positive payment history may help you to increase your credit limit. Secured card lenders may increase a borrower’s credit limit if the borrower is regular on his/her payments.

Maintain a gap while applying for credit cards –

Applying for too many cards within a short time may reduce your credit score. As a result, your application gets rejected. So, wait for a few months and then work on your credit score. Soon you’ll be able to apply for a credit card.

Create a budget –

Creating a monthly budget will help you to categorize your money as per your different needs. It may also help you to keep track of the expenses and assist you to pay your bills on time. Budget can also help you to reduce the debt-to-income ratio and decrease your debts.

Pay off your debt burden –

Too much debt can decrease your credit score. You should pay off outstanding loans and other debts as soon as possible. It’ll definitely give a push so that you can build your credit score gradually.

Manage your credit report –

Some credit reporting bureaus will inform you if there’s a change in your report. These services would be helpful to maintain a healthy, error free credit profile. Apart from that, you must also manually fetch your credit report several times and check all the items listed there.

Conclusion

Once you are rejected for a secured credit card, you should wait for a few months before applying again. Most credit card companies would tell you to wait for six months. So, you must use that time to build your credit. Doing so can increase your chances at getting the best secured credit card possible.

Is it possible to settle debt without hurting your credit score?

Is it possible to settle debt without hurting your credit score?

The simple answer would be a big “NO”

But there are certain aspects you may need to know first.

Most of your credit card debts and loans are directly reported to the 3 major credit bureaus every month. Each of your credit account statuses are regularly added on to your credit report showing whether you are late with your payments or whether the account is paid or closed.

When you settle your debts, the creditor would update your credit report with the status of “Settled” or “Paid as Settled.” The former status is naturally better than the later one, but any other payment status on the accounts except “Paid as agreed” or “Paid in full” may harm your credit score.

In debt settlement, you aren’t paying your dues full as you have agreed to the creditor. So, debt settlement will definitely have a negative impact on your credit score. Your credit score is dependent on a few factors, so the exact impact on your score may vary considering the other information on your credit report. However, it’s quite sure that debt settlement may have a significant effect on your credit score.

But is there any way you may settle your debts without hurting your credit score? Of Course… there are some options which may indirectly help you to settle your debts and get out of the situation. Let’s have a look at them closely.

How to settle the debt without damaging credit

One thing is sure, you need to create a fund or a reserve to pay off your debt. When you have saved enough money to pay off your debts, you may try to negotiate with the creditor for lowering the debt amount.

1. Choose which debt to handle first

If you have multiple credit cards, payday loans, medical bills, and other unsecured debts, then you should focus on settling one debt at a time. Use one of the following methods:

  • Pay off the debt with the highest interest rate. This debt may cost you the most in interest, so settling it off first may save you money. You should make the minimum payments on all other credit cards and regular installments on loans. Once you pay that debt off, you may target the next account with the highest interest rate.
  • Pay off the account with the smallest debt balance. This may cost you more as you are ignoring the higher interest debts. However, this strategy might give you a positive momentum as you’ll be paying off an account sooner than you think. As you pay off one account, your confidence may get a boost.

If you want, you may negotiate with the creditor at any point in time.

2. Creating a budget

To settle your debts, you may need to live within your means. Basically, you must free up as much money as you could for contributing toward your debts. Take a deep breath and create a budget:

  • Make a list of fixed expenses. Normally these things may cost the same every month: rent/monthly mortgage payments, the premium for health insurance, car payment, food expenses, etc.
  • Add new variable expenses. They may change each month. Variable expenses are basically luxuries like dining out expenses, gym memberships, Netflix charges, etc.
  • Take measures to reduce your variable expenses as soon as possible and contribute the money saved towards debt payments.

3. Find a part-time job

Apart from lowering your expenses, you should also increase your income. Find a part-time job or try freelance work online. Don’t miss out any opportunity to explore new side hustles that may increase your income and help you to settle your debt on your own.

The money from side hustle may add up funds quickly. For example, you might get a job for $30 an hour. If you work 30 hours a week, you can earn an extra $900 before taxes. Over a period of 1 year, you will have gathered about $43,200.

4. Sell your unused goods

You can earn money by selling unused things that you own. In fact, you might be able to sell things that got you into debt. Search your home for such things and locate anything that you can find useless. Sell it on eBay or in a yard sale. Engage all the money to pay off your unsecured debts.

5. Ask for a lower interest rate

Once you have gathered enough money to pay off your debts, you might want to negotiate your interest rate with your creditor. You can’t reduce the principal amount at all, it’s the interest which can be settled. Although you aren’t entitled to a lower rate, there’s no harm to ask.

Call your creditor, introduce yourself, and tell them how long you have been a customer. Ask the creditor if he can offer you a lower interest rate, so that you can repay your debts asap. You can also negotiate to settle the debts by paying less than what you owe. But you need to convince them to report your account as “Paid as agreed”.

6. Don’t close your credit cards after paying off

As you pay off your credit cards, you might think of closing them so that you will never be tempted to incur huge balances on them again.
However, closing too many credit cards within a little time gap can create a red flag on your credit card report.
A better option would be waiting for a few months before closing each card. For example,6 months or so. Closing several credit cards, especially the older cards, in a short period of time, can give creditors the indication that you are having a financial hardship and can’t afford to maintain multiple credit cards. Apart from that, closing old cards also remove a good credit history from your credit report.
Closing one card and waiting a few months before you close another is usually a better strategy to protect your credit score.

Conclusion

You must remember that the prime target of debt settlement is to wipe out some of your debts which you can’t afford to pay in full. That means you need to sacrifice your credit score for the time being, especially if you’re not going to apply for a big loan right now.
Once you’ve settled the balances, you must focus on rebuilding your credit score again. Since credit is depending on your borrowing, you’ll have to use credit cards responsibly for incurring more credit balances and take out loans to rebuild your credit. Paying your monthly payments is another important thing to remember. You’ll should become an ideal borrower by making on-time payments for loans and pay your credit card bills within every billing cycle. This way you may achieve a good credit score, and can avoid incurring more debts.