USA   |   UK   |   Australia   |   Canada
ADVERTISEMENT

Rejected: How your credit history impacts card approvals

A long, positive credit history is an indicator that you are a good risk

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

Ask a question.

'Opening Credits' stories

Question for the CreditCards.com expert

Dear Opening Credits,
I recently applied for a Journey Student Rewards credit card from Capital One, but was declined. This card, I thought, would be a sure approval seeing that it is for students (I'm a medical student) and requires an "average" credit rating. I don't understand why I was declined, seeing that my current credit rating is good, with an Equifax score of 687 and a TransUnion score of 734.

I had a few late payments on credit cards and installment accounts a few years ago, but all my balances are $0, paid off or low. They declined me because of a "limited credit history." I don't understand why I'm being declined to build good credit because of my age. I hate the fact that I applied for this, expecting to be approved, but wasn't -- placing a hard inquiry on my credit report. Please share any thoughts you may have as to what I could do to build credit at my age (24) that would not risk having a hard inquiry on my credit report. I feel like I'm doing everything right, but am still not getting rewarded for it. Thanks so much in advance. -- Errol 

Answer for the CreditCards.com expert Dear Errol,
This may come as a surprise, but there is no such thing as a "sure approval" in the credit card business. Yes, there are times and circumstances when chances are high that you would be approved for a loan or line of credit, but you can forget about guarantees.

Even when a product is marketed to a specific segment of the population -- students, small business owners, travelers and so on -- the issuer still has the upper hand and can select its cardholders based on whoever it is looking for at that particular moment. Ultimately, the issuer can also choose to say "no thanks" with little more than a brief explanation.

It appears that your TransUnion credit score is pretty good right now, though the one from Equifax is a touch low to qualify for the very best credit cards on the market today. At this stage in the game, a score of about 720 or higher is ideal (FICO-based credit scores go up to 850, but few people hit that mark).

Still, it doesn't look like the scores themselves are holding you back. In fact, the creditor already told you what is: your limited credit history. And just what does that mean? Well, it's one of the five factors  that goes into the credit scoring process. The two most important categories are "payment history" at 35 percent, and "amounts owed" at 30 percent. As you have no consumer debt and the late payments you made were a while ago, you seem to be OK for the biggies. However, "length of credit history" is the next most important part of the equation, at 15 percent, and this is where you seem to be lacking.

I'd like you to consider this matter from a creditor's perspective. They are in the business of loaning money and expect to get back all of what you charge, and then some, when you add in interest and fees. The card you were interested in was unsecured, meaning there is no collateral involved. If you renege, they have to spend time and expense contacting you, and if you still don't pay, either sell the balance at a loss to a collector or take you to court. They don't want to have to take either of these actions, so they turn to your credit report to be as sure as possible that you're good for your word. A long, positive history of borrowing and repaying money gives them confidence that you will be a responsible customer.

At this point I'd advise against pursuing another unsecured account. Just go for a secured credit card right now and build your reputation as a great cardholder. They are relatively easy to qualify for, the collateral can be as low as a few hundred dollars, and they're excellent starting (or rebuilding) credit tools. Just a year or so of regular, responsible use can do the trick. After that, try for an unsecured card again.

In the meantime, don't fret about getting dinged for that inquiry, Errol. One is not a big deal. Hard inquiries (applications for credit) comprise only 10 percent of a credit score, and a few here and there are totally expected.

See related: FICO's 5 factors: The components of a FICO credit score, Your keys to getting in the 700+ credit score club, 7 building blocks of good credit, Bulk up your thin credit in 4 easy steps

Published: May 25, 2011



Join the discussion

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Three most recent Opening Credits stories:

Share This Story




Follow Us!


Credit Card Rate Report

Updated: 12-21-2014

National Average 14.92%
Low Interest 10.37%
Balance Transfer 12.73%
Business 12.85%
Student 13.14%
Reward 14.90%
Cash Back 14.94%
Airline 15.52%
Bad Credit 22.73%
Instant Approval 23.33%

ADVERTISEMENT
ADVERTISEMENT