People with a poor credit score or 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. A secure credit card may also help them 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 secure credit card application gets denied, the first thing that’ll come to mind is – Why was your application denied? You are ready to put a good amount as a 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 why 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 many 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 to 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 pieces of 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 for minor spelling errors 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.
If you have filed for bankruptcy previously, credit card providers may consider it 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 every year absolutely free. Check your credit report to find out any 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. Here’s 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 got 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 your 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.
Once you are rejected for a secured credit card, you should wait for a few months before applying again. Most credit card companies will tell you to wait for six months. So, you must use that time to build your credit. Doing so can increase your chances of getting the most-secured credit card possible.