Fear of credit rejection can keep you in debt

Some avoid applying for credit even when they could get better terms

Tamara E. Holmes
Personal Finance Writer
Writes regularly about personal finance and health


Is fear of rejection keeping you in debt?

Nobody likes rejection. But some consumers are so afraid they will be turned down when applying for a credit card that they could be losing money in the long run.

“Fear and financial illiteracy often go hand in hand,” says Thomas Faupl, a San Francisco-based financial therapist. Fears and anxiety can keep people paralyzed when it comes to their finances.

According to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2016, 11 percent of respondents who did not seek credit actually desired additional credit. Of that group, 60 percent did not apply because they were afraid they would be turned down.  

Some of those fears may be well-founded, particularly for those with lower credit scores. In October 2017, the Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) Credit Access Survey found the proportion of respondents who applied for credit and were rejected was 8 percent. However, the proportion of respondents with credit scores less than 680 who were rejected was more than three times higher at 26 percent.

Once rejected, the sting can outweigh the lure of what new credit can bring.

“I’m afraid to apply for credit,” admits Ulysis Cababan, a content strategist for Las Vegas-based immigration company RapidVisa. Cababan was rejected for a credit card two years ago and doesn’t want to repeat the experience, so he simply uses cash.

“For now it’s not part of my plan to re-apply for a credit card,” he says. 

How a fear of rejection can hurt you

A fear of applying for credit can cost you money.

If you carry a balance on an existing high-APR card or loan, you may be able to shop around for a credit card or personal loan with a better rate, says Lisa Piercefield, regional operations manager for credit counseling agency Apprisen in Indianapolis. A card or loan with a lower interest rate would allow you to spend less money in interest and pay off your debt faster.

The fear of credit rejection also can stop you from receiving rewards that can make your life easier – and less expensive.

For example, if you have a solid credit score and travel a lot, a travel rewards credit card can save you money on flights. If you have a small business, a business rewards card can save you money on office supplies.

“You want to be happy with the card that you have and make sure that it’s working for you the best that it can,” Piercefield says.

For some people, the thought of being denied credit triggers shame about how they have managed their finances in the past. Sometimes people get anxious around applying for credit because they know their credit score is not where it’s supposed to be, Faupl says.

Other times, people don’t understand how to improve their credit so they simply avoid dealing with it entirely because they are afraid to ask for help.

Good credit doesn’t happen overnight and, more importantly, it can be obtained regardless of how low your credit score is now.

However, avoidance of credit can make matters worse. If you have a thin credit file, your credit score will remain stagnant and you may find yourself even more likely to get rejected the next time your credit is pulled when you want to lease an apartment or get the best cellphone deal.

Getting over the fear

One way to rebuild confidence, which can help you to overcome the fear of rejection, is by taking a credit management class from a nonprofit credit counseling agency or your local credit union.

Having little or no understanding about finances can leave you anxious, says Faupl.  “Education can help with anxiety.”  

Another way to get past the fear is to take baby steps. “Maybe you go online first and do some research on credit reports,” Faupl suggests.

Then you might check your own credit reports and credit scores to see what financial behaviors are hurting your score the most. You can check your VantageScore and get a free TransUnion credit report at CreditCards.com. For a free FICO score, go to Discover Scorecard or check your card issuer, as many issuers offer free credit scores

If you need professional help with your credit, you might not feel comfortable talking to a credit counselor about your credit face to face. “Instead of making an in-person appointment, maybe you call on the phone because that feels safer to you,” Faupl says.

When you’re ready to take the leap and apply for credit again, look to a credit union, or places where you currently have banking relationships, Piercefield suggests. A lot of credit unions and community banks offer second-chance programs or credit-builder programs that let you qualify for credit with a lower credit score.

If after taking those steps you’re still afraid to apply for credit and you feel crippled by your fear, a financial therapist may be able to help you get to the root of your anxiety.

Of course, you should also take steps to improve your finances so you are less likely to be rejected again. If you’ve been rejected for credit:

Understand why it happened

Under the Fair Credit Reporting Act, consumers have the right to know what information in their credit file led to the rejection of the credit application. If you’ve been turned down for credit, you’re entitled to a free credit report, and the company that denied you credit must tell you where they obtained your credit information and provide you the contact information so you can get a copy of it.

Let some time go by

Some consumers make the mistake of reapplying for credit again and again after they’ve been rejected with the hope of getting an approval. However, multiple credit inquiries can ding your credit. 

“If your score is already below average, you are driving that score down,” Piercefield says. Instead, look at why you were denied credit, and work to improve that. For example, if you have late payments, pay on time for 12 consecutive months before re-applying, Piercefield suggests.

If you have too much debt in relation to income, start paying down that debt. If your credit report has a black mark such as a bankruptcy, you may want to wait to seek credit until that item falls off your credit report or at least wait until your credit score starts to recover.

If your credit score is 670 or below, work to get the score up before applying for credit or apply for credit that is easier to get such as a secured credit card, which lets you put your own money up for collateral, Piercefield says.

Other times, it’s a lack of credit history that prevents someone from having a good credit score, says Armand Goytia, a certified consumer credit counselor for Guidewell Financial Solutions in Catonsville, Maryland. In this case, establish credit by applying for a secured credit card or a retail credit card. Retail cards generally come with lower credit limits, higher APRs and are easier to get approved for.

The important thing is to recognize that the journey from credit rejection to financial success is one that happens one step at a time.

“The best advice I can offer to anyone who is looking to regain their credit confidence is to have patience. Good credit doesn’t happen overnight and, more importantly, can be obtained regardless of how low your score is right now,” says Goytia.

See related: 15 questions that will help you find the right credit counselor, 6 fears that keep people from seeking financial advice


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Updated: 11-16-2018