How bad is it to get denied for a credit card?

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

Reader questions are answered twice a week by TPG Senior Points & Miles Contributor Ethan Steinberg.

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. 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 5 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.

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

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

In most cases, you’ll receive a hard credit pull whether you’re approved for a card or rejected, though 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: 5 ways to improve your credit score

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, like Amex, which limits you to only getting the welcome bonus 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.

Related reading: The ultimate guide to credit card application restrictions

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. There’s no hard and fast rule 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.
Featured photo by Karen Roach/Shutterstock.