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Update: Some offers mentioned below are no longer available. View the current offers here – Chase Sapphire Reserve
When you find a great travel rewards card, the last thing you want is for your application to be declined. But thankfully, there are several steps you can take to improve your odds of being approved. In today’s post, I’ll share some tips on how to do just that.
How Credit Card Applications Work
When you apply for a credit card online, you’re asked to fill out an application that’s about one page long. Included is basic information like your name, address and birthdate, as well as your qualifications for being extended a line of credit. These qualifications typically include your employment status, income and housing costs.
Once submitted, your application is processed by a computer and you’ll typically receive one of two responses: immediate approval or some form of “pending” status. If you don’t receive instant approval, it’s not necessarily a bad thing. You can expect to receive an approval or denial in the mail within a week or two, but you don’t have to wait. During this time, you have the option to call the card issuer and ask for a decision over phone. If you chose to do so, the representative will consider your application while you’re on the line, and ask you to clarify any information necessary.
If you don’t call the card issuer, you may very well receive your new card in the mail within a week or two. Otherwise, you’ll receive a letter indicating that your application has been denied, along with one of several reasons why. In fact, the law requires card issuers to provide a reason whenever your request for credit has been denied, called an Adverse Action Notice.
Why Your Application May be Denied
Obviously, you won’t be granted a new line of credit for a premium rewards card if your credit score isn’t high enough. Still, the card issuer will need to be more specific in the Adverse Action Notice that it sends to you.
For example, you could be told that you have too much outstanding debt, too many recent applications for new credit or a history of late payments. Finally, individual credit card issuers may have their own restrictions that have nothing to do with your credit score.
7 Ways to Increase Your Chances of Approval
1. Check your credit history and score. — When applying for a new credit card, the most important factors are your credit history and credit score. Most major issuers now offer customers free access to their credit score, and Capital One offers its CreditWise program to anyone. These services will also offer you some feedback about the factors affecting your score.
If your credit score is not where you think it should be, you should request a copy of your credit history from the three major consumer credit bureaus to find out the details. To obtain your copy, go to AnnualCreditReport.com, the only source for free credit reports that’s authorized by federal law. With this service, you can request one free copy of your credit report every 12 months from each credit-reporting company.
2. Only apply for cards that match your credit profile. — Travel rewards cards are typically only offered to those with Excellent (750+) or Good (700-749) credit scores. In general, the more features and benefits offered, the higher the credit score requirements will be, so don’t expect to be approved for the Platinum Card from American Express with a credit score in the 600s. One way to find out which cards you might qualify for is to use the credit card search tool at MyFico.com.
3. Reduce your outstanding debt reported to credit bureaus. — The first time I saw a copy of my credit report, I was outraged. It showed that I had outstanding debt on all of my credit cards, even though I was consistently paying off all of my statement balances in full and on time.
Later, I learned exactly why my credit reports all showed me as being in debt: Every time one of your credit card’s monthly statement cycles closes, it generates a statement and reports that statement balance to the three major consumer credit bureaus. At that moment, the card issuers have no way of knowing if you’ll eventually avoid interest charges by paying your statement balances in full. Technically speaking, my statement balances all constituted outstanding debt, even though I was confident that the interest charges would be waived when I paid each statement balance in full before its due date.
Have you ever heard the old saying that banks only loan money to people who don’t need it? Even if your statement balances aren’t very high, they still count as debt and can still make a card issuer hesitant to approve you for a new line of credit. From the bank’s perspective, it’s less concerned that it will be offering you yet another sign-up bonus than it’s worried about over-extending credit to you and risking default.
Once you understand the bank’s concerns, and how your statement balances are reported as outstanding debt, it’s easy to take steps to minimize what’s reported. The first step is to pay off your largest outstanding balances before the end of your card’s statement period. If you pay your balance just after your statement closes, it won’t make any difference in what’s reported to the credit bureaus that month.
Then, you have to wait until a few days after your statement period closes and its balance is reported to all the credit bureaus. If you do this on all your credit card accounts, you won’t appear to have any outstanding debt. In addition, you’ll probably experience a small bump in your credit score as your debt-to-credit ratio plummets. This is something I try to do when I’m anticipating applying for a new credit card, and it’s a vital strategy when you’re applying for a mortgage or home loan.
4. Pay off current outstanding balances on cards from the same issuer. — You can also increase your chances of approval by reducing or eliminating any current balances with other cards you have from the same card issuer, as the bank can always see this kind of outstanding “debt” in real time. For example, if you were looking to be approved for the Chase Sapphire Reserve Card, you might want to pay off any existing balances that you have with other Chase cards before you apply. But in this case, it’s not necessary for the statement to close, as the bank will always know your current balance.
5. Be mindful of individual card issuers’ restrictions. — Some card issuers limit you to a maximum number of accounts where you’re the primary cardholder, such as American Express’ limit of four accounts per person. Others will limit the number of applications you can make in a certain time period, such as Chase’s (theoretical) limit of one personal and one business card for every 90 days.
6. Include all sources of income. — One common mistake people make when applying for a credit card is understating their income by not including all qualifying sources. In 2013 the Consumer Financial Protection Bureau (CFPB) issued an amendment to the CARD Act to specifically allow you to include all household income that you have a reasonable expectation of access to. The primary reason for this rule was to ensure non-working spouses and domestic partners equal access to credit.
In addition, be sure to include other eligible sources of income such as alimony, child support, disability benefits, investment income and disbursement of retirement savings.
7. Call for reconsideration. — If your application has been initially denied, don’t give up. You can contact the bank and ask for a representative to manually consider your application. Before calling, try to pay down your existing balances as previously mentioned, especially with any accounts that you have from the same bank you applied to.
In some cases, I’ve called to plead my case, only to hear the representative immediately approve my application with no questions asked. Other times, you might have to offer a reason why you want be approved. For example, you might want to mention the features and benefits of the card you’re interested in, and avoid specifically mentioning the sign-up bonus. And if you didn’t initially include all your sources of income, you can ask to have your application updated.
If that doesn’t work, suggest reallocating a part of your existing line of credit with that bank. Remember, the bank’s first priority is to limit its exposure in case you can’t pay back your charges. By volunteering to shift your line of credit, you’re making it possible for an issuer to offer you a new account without increasing its risk. Finally, you can suggest closing an unused existing account if it will result in approval for the new account.
Have you ever tried any of these techniques to be approved for a new credit card account? Do you have any tips and tricks of your own?