Being denied a credit card might not have a long-term impact on your credit, but the application process can lead to some short-term negative effects. If you are denied a credit card, it might be a sign that you are already overusing cards and need to improve your debt situation.
When you apply for a credit card, the provider typically asks for information about your income and gets your social security number and other information. Comparing your income to existing debt lets the lender carefully weigh your ability to take on new debt. The lender typically checks your credit history with Equifax, Experian and/or Trans Union, the three major credit reporting bureaus. Your score is an analysis of your historical credit behavior and likelihood for responsible use.
The Fair Isaac Corporation developed the FICO scoring model, which is the basis for rating systems used by each of the reporting agencies. Payment history, amounts owed, length of credit history, new credit and types of credit are five major categories used to determine your overall credit score. Payment history and amounts owed affect 65 percent of the score. Length of history is 15 percent and new credit and types of credit each have a 10 percent impact. The new credit category includes criteria related to your credit card denial.
The modest negative effects resulting from your denial would actually occur whether you were approved or denied. Within the "new credit" category, the number of recent credit inquiries and time since the last inquiry are important factors. Typically, each credit inquiry knocks your score down a few points. If you applied for the new card too close to another credit application, the number of close inquiries can have a negative impact on your score.
The Bigger Picture
The more serious matter you should consider when denied a card is whether your current credit situation needs mending. Lenders usually want to issue new credit unless the risks are too great. If you have several personal loan or credit card accounts with balances, make paying those down a priority. Doing this builds your payment history and reduces your debt-to-limit ratio. Since these are 65 percent of the score, you can see the advantages of proving your ability to responsibly use your cards.
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