You're responsible with your finances, fully employed, pay every bill on time, and you might even have a high credit score, but every credit card application you fill out gets rejected.
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An ironic fact about building good credit is that it often requires credit to get started. Most lenders are hesitant to give you a loan without any credit history. And applying (and getting denied) for a bunch of credit cards in a short period of time only makes the problem worse. When a lender reviews your credit history and sees no unsecured credit and a lot of recent inquiries, it makes you look desperate for credit and raises a red flag.
Luckily, there are some steps you can take to increase the likelihood a lender will approve your next credit card application.
Review your rejection letters
Lenders don't deny applications for no reason. Every time they send out a rejection letter, they list a specific reason for the credit card denial.
Reasons for denial include:
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- Loan balances are too high
- Revolving credit balances are too high
- Too many recent inquiries on your credit report
- Insufficient income
- Recent collection or public record
- Recent delinquency
- A charge-off on your credit report
- Limited credit history
- Not old enough (must be 18 years old)
- You haven't been employed long enough
Some of these problems have a straightforward fix. If your balances are too high, pay off as much as you can before your next application. If you're too young, haven't been employed long enough, or have delinquencies and collections on your report, only time will fix those problems.
Others can be a bit more difficult. Insufficient income may mean you're applying for credit cards reserved for higher net worth individuals. Those often have the best sign-up bonuses, but can be impractical for people with lower incomes. Limited credit history is a problem you can solve by following the tips later in this article.
You may also receive free access to the credit report the lender used in assessing your application. Take the opportunity to review the credit report for errors, and dispute any incorrect information. An unknown inaccuracy on your credit report (like a collection that isn't yours) could be the problem. If you don't receive access to a free credit report from the lender, you can use www.annualcreditreport.com to get a free credit report from each of the three bureaus once a year.
Get yourself a credit history without your own credit card
Perhaps the easiest and least expensive way to build credit history is to take advantage of a close friend or family members' good credit. Ask someone with good credit to add you as an authorized user.
Authorized users have access to the account, but the account owner is still liable for all payments. That's an important thing to keep in mind, and it may make people hesitant to add you as an authorized user if you have a history of being bad with money. You can put them at ease by offering to let them keep the credit card, so that you won't have access to it at all. Tell them you're just looking to build credit history.
Sometimes an exact copy of the credit card account history will show up on your credit report dating all the way back to the original account's opening date. (That's the best case scenario) More often, the account will show up as a brand new account. Either way, you instantly have a revolving credit line on your report in good standing, and it didn't even require a credit inquiry.
Use a secured credit card to get your feet wet and show lenders you're responsible
Lenders are hesitant to give out unsecured loans, but if you can put some money down now they may give you a secured credit card. Secured credit cards are like training wheels for unsecured credit cards. Consumers are asked to make a deposit with the issuer, and that deposit usually becomes the credit limit.
Even if you can only afford to put down a couple hundred dollars, secured credit cards offer an easy way to build credit history if your applications for unsecured cards keep getting denied. You don't have to put much on the card to show you can responsibly use it, and the issuer may automatically upgrade your card to an unsecured version after just a few months.
After six months of diligently paying off your bill on or before its due date, call up the issuer and ask for an unsecured credit card. If they say no, ask what it will take to prove you're creditworthy enough for one. If after a full year, the bank won't give you an unsecured card, find another issuer and apply for one of their credit cards. At this point (assuming you pick an appropriate credit card) you should get a nice approval letter.
What to do when you finally get approved for a credit card
If you take a few months to build up some credit and finally get approved for that credit card you originally wanted, you'll have a powerful financial tool in your hands. Be sure to use it responsibly: don't charge anything you can't afford to pay off at the end of the month and always pay your bill on time. If you do that consistently, your credit score will climb higher and higher, and you'll soon be able to get some of the best credit cards available reserved for people with high credit scores. You'll also be able to take advantage of the many perks of using a credit card, which are particularly useful for big-ticket items.
If you want your credit score to keep moving higher, it may benefit you to apply for yet another credit card in six to 12 months. Lenders like to see that you're capable of managing multiple credit cards. It might seem ironic that someone with a lot of credit cards will have a better credit score than someone with just one (all else being equal), but that's how the system works. Besides, you'll have an opportunity to take advantage of those lucrative sign-up bonuses.
Follow the tips in this guide to determine why lenders keep denying your credit card applications, and take the necessary steps to correct the problem. You'll be on your way to building a respectable credit score in no time.
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