Why your credit application may be denied – even with a good credit score

Do you have a good credit score? Give yourself a well-deserved round of applause. Credit scores typically range from 300 to 900. If your credit score is 670 or above, it’s considered good. If it’s 750 or above, it’s considered excellent. You must be doing something right. (Paying your bills on time and keeping your credit card balances low certainly help.)

There are websites that let you check your credit score for free. If it’s above 670 (or above 750, for that matter), you may feel like you can apply for any credit application and be approved. While your good credit score certainly helps, it’s not the be all and end all. Your credit application may still be denied. (In case you’re wondering what happens when your application is denied, you’ll usually receive a denial letter in the mail with the reason it was denied.)

Here are three reasons why your credit application may be denied even with a good credit score.

Reason #1: Not enough income

When you apply for a credit card, you’re asked several questions: your name, home address and income. Some credit cards have a minimum income requirement. If you fail to meet the income requirement, your credit card application will be denied – even with your pristine credit score.

Oh and don’t think about lying on your credit card application about your income. Besides being illegal, your credit card could be cancelled if your lender ever found out.

Reason #2: Past bankruptcy

Have you filed for bankruptcy? Even if you’ve taken the necessary steps to rebuild your credit score – you’ve taken out a secured credit card with a deposit and used it responsibly – you may still be denied for a new unsecured credit card application. Depending on the lender, it could take you a few years before they’ll accept your application for an unsecured credit card.

Unsure whether your application will be accepted? If you’re denied once, don’t apply again until you receive a letter in the mail detailing the reason(s) behind the decline. Too many denials in a short amount of time can hurt your credit further.

Reason #3: You already have too many credit cards

Did you know that lenders put a cap – a limit – on how many credit products they’ll extend to any one borrower? That’s right, even if you have a good credit score and you use your credit responsibly, you may still be denied if you have too many credit accounts open with any one lender. Many lenders also put a limit on how much total credit they’ll extend to you – this includes credit cards, lines of credit and mortgages.

How do you avoid this? If you really need extra credit and you’re planning to use it responsibly, going to another lender (not your local bank branch) can be a good start.
Spreading your financial products is also a good way to protect yourself if you run into financial problems. Did you know that some lenders can take funds out of your chequing account to pay your mortgage or credit card if you’re delinquent? By signing up for a chequing account somewhere else besides with your credit card issuer, you can better protect yourself should you run in to financial difficulties.

The Bottom Line

As you can see, a good credit score is helpful, but it’s not the only factor lenders care about. By better understanding the reasons why your credit card application may be denied, you can avoid applying for credit cards you’re likely to be denied for (and lowering your credit score in the process).

By applying for credit cards and being accepted, you can use your new credit cards responsibly and build up your already stellar credit score even more.