TPG reader credit card question: Are there any long-term problems if you get declined for a credit card — and what you can do about it?

Editor’s note: This post has been updated with new information. 

While travel is on hold now, the fastest way to accumulate a meaningful amount of points and miles for the future is by opening new travel rewards credit cards and earning the welcome bonuses they offer. I promise, if you keep at this long enough, you’ll eventually get rejected on a credit card application. Especially since right now, credit card issuers are being more stringent about their application processes.

Related reading: The surprising reason I was denied a Chase Ink Card

TPG reader Constantin wants to know how bad it is if he gets denied when applying for a credit card:

Are there any long-term problems if you get declined for a credit card? I have strong credit but I’m worried I might be over Chase’s 5/24 rule.

TPG READER CONSTANTIN

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The factors that affect your credit score

This is an interesting question, as it’s important to have a thorough understanding of the factors that affect your credit score before you start applying for credit cards. Any time you apply for a new line of credit, whether it’s a mortgage, car loan or credit card, the company will pull your credit report.

These “hard inquiries” usually ding your credit score by about five points, and overall, your new credit history accounts for about 10% of your FICO score. These types of credit pulls differ from “soft inquiries,” which might happen when you open a new bank account or get your credit screened to sign a rental agreement. In a soft inquiry, the other party looks at your credit report but the inquiry doesn’t then affect your credit score.

Related reading: What is the difference between a hard and soft pull on your credit report?

These inquiries fall off your credit report after about two years, although the temporary score drop usually rebounds before then.

Does getting denied for a credit card hurt your credit score?

In most cases, you’ll receive a hard credit pull whether you’re approved for a card or rejected, although American Express has been known not to hard pull existing customers when it declines them for a new card.

In this sense, the negative impact of applying for a new credit card is the same whether you get approved or rejected. Obviously, if you get approved you get a new account and an increased credit limit which can help boost your credit score long term (not to mention get you a nice welcome bonus), but there aren’t any uniquely negative effects of being rejected.

Related reading: 6 things to do to improve your credit in 2020

Study each card issuer’s application rules

The second half of Constantin’s question is equally as important as the first.

While you shouldn’t worry too much if your application gets rejected, you shouldn’t just apply sporadically without understanding the unique rules of each different card issuer. Constantin is talking specifically about his Chase 5/24 status and applying for Chase cards, since the issuer will automatically reject you if you’ve opened five or more credit cards in the last 24 months (except certain business credit cards). Even if you don’t know your Chase 5/24 status off the top of your head, it’s worth taking some time to sit down and figure it out instead of just applying randomly and hoping for the best.

The same goes for other issuers such as Amex, which limits you to only getting the welcome offer on each of its credit cards once per lifetime. You also have to be careful, as some issuers are especially sensitive to recent inquiries. Even if they don’t have any formal rules like Chase’s 5/24, Citi and Capital One have both been known to reject applicants with otherwise excellent credit for having too many recent inquiries on their credit report. And Bank of America has its own 2/3/4 rule, where you can only get approved for two new cards in a 30-day period, three new cards in a 12-month period and four new cards in a 24-month period.

Related reading: The ultimate guide to credit card application restrictions

Reasons why you may get denied

Each issuer has its own set of criteria for who they approve and deny for credit cards. While many of the factors will overlap across credit cards (every issuer will look at your credit score, for example), many have other constantly changing requirements before they will approve someone for a new line of credit. During times of economic downturn (such as right now), those criteria frequently become more stringent.

Related reading: 5 ways the global recession is affecting credit cards and banks — and the upside for some cardholders

Here are some of the reasons why you may get denied for a credit card:

• Your credit score isn’t high enough — This is the most common reason why someone may not be approved, and definitely the most talked about. While card issuers don’t publish their official credit score requirements (and typically it’s a range rather than a particular number), data points can help you pinpoint where you should strive to be before applying.
• Too many recent inquires — It may only make up 10% of your credit score, but issuers see too many recent inquires as a sign of financial distress. This can impact whether or not they approve your application. Plus, some issuers have specific requirements about how many new accounts you can have opened in the past few years (such as Chase’s 5/24 rule).
• Too much credit extended — Some issuers will only extend so much credit to one person based on other factors. So if you already have a few cards with a certain issuer that hit that threshold, based on your credit profile, they may be unwilling to give you a new line of credit.
• Limited credit history — If you’re just getting started out with credit cards, it may be harder to get approved for certain cards. Issuers like to see lengthy credit histories because those who have been paying bills on time for years and have a proven history of paying off their credit cards pose less risk to a creditor.
• Not enough funds in a banking account — This has become a more common reason for issuers to cite in recent years. Sometimes, you’ll get a denial back saying you have “insufficient funds in an associated banking or investment account.” Unfortunately, there isn’t ever a set threshold published of how much you have to have, and many times issuers don’t require you to have money in an issuer bank account to apply.
• Your listed income isn’t high enough — Issuers use your reported income as a way to help determine your credit limit. But if it’s lower than their minimal threshold, they may deny your application altogether.
• You have past negative marks on your credit report — Credit card issuers don’t just look at your credit score when making a decision. They’ll look at your credit report as a whole. If you have charge offs or other negative marks on your report, they may decide not to extend a line of credit.

What to do if you get rejected

Despite your best efforts, rejected applications are a part of the game. In over three years of collecting points and miles, I’ve been rejected for 12 different credit cards and still have a credit score of about 780. If you get rejected from a credit card, there are several important steps to take instead of just giving it up and calling it quits.

See if you can be reconsidered for the card

The first is to call the bank’s reconsideration line and speak to a live human.

Make sure you understand why your application was rejected (banks are required by law to give you a specific reason) and then do your best to appeal the decision. This process doesn’t always work, but if there’s a $1,000+ welcome bonus on the line, it’s worth spending a few minutes on the phone trying to salvage it.

There’s no hard-and-fast rule for what works and what doesn’t in a reconsideration call, but I usually try to explain to the agent why I want/need this new credit card and how I see myself using it. If they still say no, you can also try offering to transfer credit from another card you have with the bank so that they aren’t really issuing you any more credit when they approve you.

Don’t apply for the card again right away

If this still doesn’t work and your application is denied, that’s OK. Unless there’s a specific mistake you made (i.e. applying with the wrong name on a business credit card), don’t try and immediately re-apply for the same credit card.

You’ll generally want to wait at least three to six months before trying again. Your mileage may vary here, but it’s important that you spend that time working to improve your credit score and fixing the specific reasons why you were declined.

If you were declined for too many recent inquiries, don’t apply for more credit cards. If your utilization ratio was too high, pay down your balances before you apply again. If your length of credit history was too short, you might want to consider waiting even longer. Many banks have an informal rule that they’ll only issue their top credit cards to people with over one year of credit history, so if you’re just starting out, you might need to wait a bit longer to get your hands on some of the most popular rewards credit cards.

Related reading: 5 ways to use a credit card responsibly

Consider your other credit card options

Along this line, if your credit score is too low and you don’t want to wait, you can consider applying for a card with a lower credit score requirement.

Don’t expect free first-class flights or suite upgrades, but some of the best cash-back credit cards will let you earn some rewards while you work to build your credit. Another great option is a secured credit card, which is a bit of a hybrid credit/debit card. It’s technically a credit card, which is good for people looking to build credit history, but when you open the card you give the bank a deposit which becomes your credit limit. If you pay a $2,000 deposit, your credit limit is $2,000. This way you can learn how to use credit responsibly, and build your score without being a financial risk to the bank.

Related reading: The best first credit cards

Bottom line

Getting rejected for a credit card is unfortunate, but thankfully there’s no permanent harm to your credit score. The small hit to your credit score and the inquiry itself will both fade over time, meaning you shouldn’t balk at applying out of fear of damaging your score for the long term. Still, you should make sure you know the rules of your issuer before applying. There’s no good reason to waste a credit inquiry on a card you have absolutely no chance of getting, like applying for a Chase card when you’re over 5/24.

Thanks for the question, Constantin, and if you’re a TPG reader who’d like us to answer a question of your own, tweet us @thepointsguy, message us on Facebook or email us at info@thepointsguy.com.

Additional reporting by Chris Dong and Madison Blancaflor.

Featured photo by AleksandarNakic/Getty Images.