When denied credit, don't get mad, get even

Just because an issuer approved you before doesn't mean it will again

Opening Credits columnist Eric 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.

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Question Dear Opening Credits,
I applied for a credit card with Discover on Aug. 6, 2017, and they denied it due to an account I had with them in the past that they closed due to: 1) inactivity; 2) length (May 2015 – August 2016); and 3) percent of balance to credit limit too high on revolving accounts. I have a great credit score and nowhere in the agreement does it say they can terminate the account due to those three reasons. How can I fight? – Uma

Answer

Dear Uma,
Your war is not with the credit card issuer but with yourself. Which is great because it’s a battle you can easily win. By making a few tweaks to the way you’ve been managing credit products you should find peace in plastic.

First, the law and why arguing with Discover will only be an exercise in frustration. The company did nothing wrong. As per the Equal Credit Opportunity Act, financial institutions can’t discriminate against consumers on the basis of race, religion, national origin, sex, marital status or age. What they can (and do) use as deciding factors include the amount of income you have, your current expenses and financial obligations, and the way you’ve handled credit products in the past.

Although credit scores such as the FICO and the VantageScore do help lenders and other relevant businesses understand their risk level in working with you, these numbers are not everything. You can have a high score and still be denied a loan or credit card.  

Second, why your initial account with Discover was closed. Even if you couldn’t find it expressly spelled out in the agreement, all credit card issuers have the right to end a relationship with a cardholder for a variety of perfectly legal reasons. Inactivity is one. Issuers give credit lines to use, so if you allow it to go dormant, the card could eventually be shut down. Depending on the issuer, the time frame can be months or years.

The amount you owe is also significant. A high revolving balance compared to the amount you can borrow not just on that account but also with others is an indicator of financial trouble. So, if you appear to be a greater credit risk than the issuer originally thought, they may rescind the deal. It’s not personal, it’s business.

The “length” explanation is a little vague. I presume that was how long the old card was active, which was a little over a year, before the issuer closed it.

Now for what you can do. The winning strategy is pretty simple:

  • Make sure your credit rating is accurate.
    Pull your consumer credit reports for free at AnnualCreditReport.com and read them over carefully. A free credit report and credit score is also available here at CreditCards.com. If what is listed is accurate, you can move on, but if you see something that’s not correct, such as a credit card you did not open, take steps to dispute errors on your credit report. You don’t want to be turned down because of a mistake or fraud.
  • Reduce your credit utilization ratio.
    If your balances on any other cards are close to or at your limits, pay them down. Owing less than 30 percent of a credit limit should be fine, but owing nothing is fantastic.
  • Apply for the right credit card for you.
    Don’t fixate on one credit card issuer or account – scan the crowd! There are plenty of cards out there. Find one you like and that is available for the kind of credit rating you have. CreditCards.com has a CardMatch tool that can connect you to cards that suit your needs and credit profile. Apply for one, then wait for approval.

After that it’s up to you. Use the card you get regularly, and pay the bill in full and on time. Do so and you’ll keep the account open and in positive standing. No fighting necessary.

See related: Rejected for credit: When to take no for an answer, Credit card application rejected? 3 steps to getting next one approved

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Updated: 12-12-2017