The Real Reasons You Were Rejected for a Credit Card

Many consumers dread being turned down for a credit card. But what you may not realize is that you actually can control a great deal of the factors that go into the credit issuer’s decision. Of course, it’s hard to get issuers to explain their criteria because it’s essentially their secret sauce, or how they do business.

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But after speaking with Eric Lindeen, vice president of marketing for ID Analytics in San Diego, California, which offers fraud prevention tools and credit risk management scores to issuers to help them manage portfolios and onboard consumers effectively, we got the inside scoop on how it all works. Read on to learn why you may have been rejected — and what you can do to avoid it.

1. Underwriting Practices Vary

“Different institutions have very different practices,” Lindeen said. Depending on where they rest on the totem pole, their underwriting process could be more or less complicated analytically. Big issuers, for instance, “could be using hundreds of variables to determine [whether to take on a borrower],” while at smaller institutions, the process may be much simpler. “There’s basically an income threshold you have to reach and a credit score cutoff, and that’s all there is,” Lindeen said.

2. Your Credit Score Stinks 

“Realistically, there are only a couple levers that a bank or credit issuer has to work with,” Lindeen said, and one of those is the consumers’ credit risk, which is usually correlated with their credit score. The higher the score, the less likely they’re perceived to be a liability or get rejected, he continues, “and generally the [annual percentage rate] is going to be tied to how much credit risk there is for the consumer.”

Interestingly, large issuers have several APR “bands,” or groups, that they lump consumers into based on their credit score, Lindeen said. And “they’re going to slot you according to whatever risk you represent based on past behavior.”

Smaller institutions, by contrast, may only have two APR bands, which means consumers with poor credit may be able to qualify for a card, whereas they’d likely get rejected by a larger institution. “The smaller organizations have a bigger pool of people in a single risk band, so there are more people with better credit subsidizing those with poor credit,” Lindeen said.