Cash Confident: Getting Credit

People apply for a credit card for many different reasons.  Some are new to the world of credit and just getting started, while others are hoping to expand their access to credit.  Regardless of the reason, no one applies for a card hoping their application will be rejected.  To improve the likelihood of approval, consumers need to understand the credit decisioning process.

The NFCC provides the following 10 reasons a credit card application could be declined, along with the steps consumers can take to correct the problem. The list is not inclusive, but will help borrowers better understand the review process and how to position themselves to increase the likelihood of credit being extended.

Lenders prefer being able to review a track record of how a person has managed credit in the past.  A thin or nonexistent credit file can give a conservative lender reason to deny.  Judiciously build credit, perhaps starting with a secured credit card, but confirm in advance that the issuer reports activity to the credit bureaus.  Also consider becoming an authorized user on another person's card, as the activity of the primary cardholder as well as the authorized user is reported to the bureaus.

The highest weighted element in the scoring model is how a person repays his or her debt obligations.  A history of skipped or late payments can be a knock-out punch when attempting to obtain new credit. Identify any issues by obtaining the credit report for free at

.  Next, start making payments on all accounts including those that are past due. This begins building a positive history and helps to establish creditworthiness.

Creditors don't like to see that a person is utilizing all of their available credit, as this can signal that they are living on credit and opening a new line will only increase current indebtedness. Pay down credit card debt to equal no more than 30 percent of available credit.  Credit utilization is the second highest weighted element of the scoring model, so lowering debt could also benefit the credit score.

A person's debt-to-income ratio is a reflection of how much is owed relative to their income.  People have expenses beyond credit cards, thus lenders take all existing obligations into consideration.Increase income or decrease debt.  The important thing is to not appear that more is owed than can be responsibly managed.

It's a red flag if a person is attempting to obtain too much credit at one time.  Too many inquiries or recently opened accounts can make a lender reluctant to give the person another chance to spend. Only apply for the number of cards that are necessary and are appropriate for your financial situation.  If declined, do not continue applying.  Instead, take steps to remedy the reason for the rejection.  Wait a few months to reapply, as that will give the credit report time to update.

Unpaid tax liens and Chapter 7 bankruptcy can remain on a credit file for up to 10 years. Foreclosure, late and missed payments, collection accounts and Chapter 13 bankruptcy can remain for seven years.The further a person moves away from the date of the negative activity, the less impact it has on credit decisions.  A person doesn't need to wait until the activity rotates off the credit report, but putting distance between the harmful information and applying for new credit is helpful.

Although often not made public, issuers have minimum income limits that must be met in order to grant credit. Research which cards are more likely to grant credit to people with low incomes.  In the absence of other eliminating factors, getting a part-time job to supplement the primary source of income should enhance the likelihood of credit being extended.

Recent unemployment or consistent job hopping indicates an unstable income, thus putting a person at risk of default in the lender's eyes. Make steady employment a priority.  Changing jobs within the same field may not weigh as heavily against a person, particularly if it is a promotion.

Applicants must be a minimum of 18-years-old to apply for a credit card. As a result of the Credit Card Accountability, Responsibility, and Disclosure Act, Americans must be 21-years-of-age to independently receive credit unless they can prove ability to pay or have a co-signer.  It is not a bad idea for a young person to learn to manage money by living on a cash basis or using a debit card before applying for credit.

Credit card applications can be long, making it easy to inadvertently skip completing all areas. Avoid unintentional errors by filling out the application online, as these forms often do not allow a person to submit until all required fields are complete.