Save your first—or NEXT—$100,000!

Money Under 30 has everything you need to know about money, written by real people who’ve been there.

Get our free weekly newsletter and MoneySchool: Our FREE 7-day course that will help you make immediate progress on the money goals you’re working toward right now.

No, thanks
Advertising Disclosure

When Good Credit Isn’t Enough: Why You Could Be Denied A Credit Card Despite Your Excellent Score

Responsible people with excellent credit scores are often shocked after applying for a new credit card … and getting rejected. It’s more common than you think, so it pays to learn why a good credit score may not be enough.

Why was your credit card application declined? The top reasons you weren't approved.It’s bound to happen to all of us at one time or another — you go to apply for a new credit card (or an auto loan, mortgage or any other line of credit) and, out of nowhere, they turn you down.

Application declined.

You’re shocked. Angry. And — if you know that you have a fairly good credit score — flabbergasted.

“But I have good credit,” you shout. “How can you reject my application?”

A good credit score isn’t everything

If you are a regular reader of this blog or others like it, you probably have a (healthy) obsession with your finances — including your credit health. You check your credit reports at least once a year and perhaps use a free monitoring tool to track your credit score. (Learn how to check your credit score for free now if you haven’t recently).

We’ve been taught to get this number into the 700s or beyond so that we always qualify for the best interest rates.

Although it’s true that it’s important to have a good credit score, your score is just one of many factors a bank will use in deciding to extend you credit.

Understanding the underwriting process

When you apply for credit, whether it’s a credit card with a $3,000 limit or a mortgage for a $300,000 home, your application begins the process called underwriting.

Underwriting is how the bank decides whether to take on the risk of lending you money. Parts of the underwriting process are to comply with laws governing how the bank can lend money, and other parts are to protect the banks’ own interests and ensure the loan is profitable.

In some ways, the stakes for a credit card application are lower than on a big mortgage. The bank puts a lot less money on the line.

But in one respect, credit cards are actually risky for banks. That’s because a credit card is an unsecured debt. A mortgage, on the other hand, is secured. If you don’t pay, the bank can foreclose and take possession of an asset (your house).

If you don’t pay your credit card bill, the bank can send collectors after you all day long, but they can’t come in and take property to cover their loss.

Every credit card company has different underwriting criteria. This is why you can get approved for some credit cards but be turned down for others.

Though their decision-making process is a trade secret, we know generally what they want to see on your report:

No recent late payments or collections activity

Missing a single credit card payment or forgetting about a medical bill that ultimately ends up going to collections isn’t the end of the world. Such a slip might reduce your credit score by 10 or 20 points for a year or two, but it won’t take you from 750 to 500 overnight.

It might, however, prevent you from getting new credit. If you have “potentially negative items” on your credit report like late payments or collections accounts, this could cause you to be denied a new credit card.

Related: Behind on bills? How to catch up.

A low debt utilization ratio

Your debt utilization ratio is the total of your monthly outstanding credit card balances divided by your total credit limit.

Your utilization ratio is calculated using your statement balances — even if you pay the card in full each month.

Lower is better. If your ratio is 50 percent or higher, it will definitely raise flags in underwriting because it is a common predictor of people who are close to “maxing out” their credit cards.

So if you just have one credit card with a $3,000 limit and regularly spend $2,000, watch out — your utilization ratio is in the danger zone even though you don’t carry over your balance. To solve this, you can pay your credit card balance down before the billing cycle ends.

Adequate employment and income

Banks look at your likelihood of repaying a loan based on past behavior (your credit score) and also your ability to repay the loan now (based on income). You’ll be asked to list your annual income and employer. For a larger loan, the bank will verify this data. They may not for a credit card, but don’t expect to be approved for a $10,000 limit card if your annual income is only $20,000.

A long credit history

This is where, despite your best efforts to build good credit, being young works against you. The longer you have been making timely monthly payments on loans and credit cards, the more banks trust that you’re creditworthy.

Building this track record takes years. Your credit age is determined not only by when you opened your first credit account but the average age of all your credit accounts. So whenever you get a new loan or credit card, it reduces the average age of your credit lines.

Although there’s not much you can do about this one except make your timely payments and wait, it’s a reminder that this could be a reason you’re declined on a credit application despite having a good credit score.

Related: How to build credit for the first time

No “credit hungry” behavior

Someone who is eager for more credit — what I describe as being credit hungry — will likely apply for any credit card offer they see. Each time you apply for credit, it creates what’s called a hard inquiry or “hard pull” on your credit report.

Credit bureaus typically look back at the last two years and begin to dock points off your credit score if you have more than one or two hard inquiries. If you have more than a few — especially in the span of just a few months — it indicates that you’re credit hungry and is a common reason your credit card application might be denied.

Now, some people do this to exploit signup bonuses and wrack up tons of frequent flyer miles, but most people who are credit hungry are applying because their financial life is a mess and they need credit to stay afloat.


That wraps up some common reasons you might be declined for a new credit card even though you’ve got good credit. It’s frustrating, but a credit app decline isn’t the end of the world.

After you’re declined, you’ll get a letter or an email stating some vague reasons your application was rejected. These can seem cryptic, but hopefully this article sheds some light on what the bank was thinking so you can continue to improve your credit and have better luck next time.

Read more:

Getting rejected by a credit card company isn’t personal — they’re just running numbers and for some reason you don’t match their profile. Use our resources to learn more about your credit, or find another card you want to apply for:

Editor’s note: This article was originally published in May 2014. It has been thoroughly updated for relevance and accuracy before republication.

Published or updated on August 25, 2015

Want FREE help eliminating debt & saving your first (or next) $100,000?

Money Under 30 has everything you need to know about money, written by real people who've been there. Enter your email to receive our free weekly newsletter and MoneySchool, our free 7-day course that will help you make immediate progress on whatever money challenge you're facing right now.

We'll never spam you and offer one-click unsubscribe, always.

About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. DJ says:

    I was recently denied credit for the Bank of America Travel Rewards Visa. There were 2 accounts removed as a result of my disputing them on EXPERIAN(bureau stated in denial later). However, I was premature in sending a letter to BATR VISA to be reevaluated since 1 was updated immediately over the phone and the other was pending removal. When I returned home from a week vacation, I received a letter which stated that my request to be re-evaluated was still a denial for reasons as follows:


    Point 2 was not even mentioned in my first denial letter. Furthermore, I have zero late payments(151 payments out 151 payments on time). I am learning that there are a lot of factors that could affect credit decisions.

  2. Rat says:

    The whole idea and process of issuing credit card based on all these factors seems to be messed up

  3. Mary Loe says:

    I was told no credit file with a good score and income, I have a credit file so I don’t understand it.

  4. I believe you may be mixing underwriting criteria together in a manner that is not correct.

    Points 1,2,3, and 5 are commonly used factors in risk scores. If a borrower showed poorly in one or more of these categories, it is unlikely that they would have an “excellent score”. More likely they would have a mediocre or poor score, and there should be no surprises when denied credit.

    Point 4 is not part of any credit report or scoring algorithm. Underwriters will sometimes but not always consider employment and income in conjunction with a risk score.

    For example, I recently leased a new car. The finance company approved the lease on the spot without any further investigation because my credit score was above their predetermined threshold. If the score were lower, they might have asked about employment and income. On the other hand if I were applying for a mortgage, they would have asked about employment and income no matter what the credit score.

  5. Speak Your Mind