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Why Do Banks Deny Credit Card Applications?

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Why Do Banks Deny Credit Card Applications?

Million Mile SecretsWhy Do Banks Deny Credit Card Applications?Million Mile Secrets Team

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Million Mile Secrets reader Kendra emails:

Can you address if you or others have run out of cards to apply for?

I applied for 10 personal and 6 business cards last year, and I’ve gotten denied for my recent applications with Capital One, Chase, and Barclaycard (already have 2).  I can’t believe you can get 6 per quarter for years.  I feel like we’re at a stopping point and have to give up on this game for 6 to 24 months.  My husband thinks the game is over for us.  We just started in June 2014.

I’m not going to call the Capital One reconsideration line for the denied credit below because it’s all true.  I noticed you don’t promote Capital One cards on your website.  Is it because they are difficult to get?

  • Based on your credit report from Equifax, too few or no revolving accounts have a balance
  • Based on your credit report from Trans Union, there are too many new revolving accounts
  • Based on your application information, income is insufficient for requested credit

This can be common issue for folks who’ve been collecting miles and points for a long time.  But you don’t see it so often with folks who are new to the game!

Why Do Banks Deny Credit Card Applications
Being Denied for Credit Cards Can Be Frustrating, Even for Folks Who’ve Been Collecting Miles and Points for a Long Time

It can be tempting to apply for lots of cards when you 1st start collecting miles and points.  But I’ll explain why this isn’t always a good idea!

Why Do Banks Deny Credit Card Applications?

Credit card issuers will deny applications for many reasons, but for most folks in our miles & points hobby, it’s usually because of too many recent credit inquiries.

When deciding whether to approve your application, banks will look at:

Why Do Banks Deny Credit Card Applications
Banks Will Look at Your Credit Score and Other Factors Before Deciding to Issue You New Credit

How do these factors apply to Kendra’s situation?

1.   Credit Score & History

According to FICO, your credit score is broken down as follows:

  • 35% Payment History
  • 30% Amounts Owed
  • 15% Length of Credit History
  • 10% New Credit
  • 10% Types of Credit
Why Do Banks Deny Credit Card Applications
Your Credit Score Depends on Many Factors Including Payment History, Balances, and New Credit Applications

The 2 biggest factors are your payment history (do you pay your bills on time?) and balances you owe.  But the amount of recent credit you’ve applied for also has an impact.

Sites like Credit Karma and Credit Sesame can give you an estimate of how your credit score is doing.  And folks with Barclaycard, Citi ,or Discover cards can access their FICO scores for free.

2.   Recent Credit Inquiries

Kendra applied for 10 personal and 6 business cards last year, and has only been applying for cards since June 2014.  That’s 16 cards in ~7 months!

Each time you apply for a card (whether you’re approved or not), your credit score will decrease by 3 to 5 points.  This is usually temporary and your score should bounce back after a few months (as long as you use your credit responsibly).  But a LOT of applications in a short period of time could cause a big drop in your score.

Why Do Banks Deny Credit Card Applications
Lots of Recent Credit Applications Can Cause a Poor Credit Score

And credit card issuers will specifically look at the number of recent credit inquiries when deciding whether or not to approve you.  They might look at someone who’s applied for a lot of cards in the past few months as a risky borrower.

Either way, that’s a lot of credit cards in a relatively short period of time.  It might be time to slow down or take a break!

3.   Balances and Utilization

I’ve written that you shouldn’t apply for credit cards unless you can pay them off in full each month, because the interest you’ll pay negates any benefit from the miles and points you receive.

And you should keep your utilization (the ratio of balances to your credit limit) low.  Banks may view you as a credit risk if you’re constantly maxing out your cards.

Why Do Banks Deny Credit Card Applications
Try to Keep Your Credit Utilization Below 10%

That said, banks DO want to see you using your credit cards.  Kendra’s application was denied in part for:

…too few or no revolving accounts have a balance

Card issuers don’t like it when you spend just enough to get the sign-up bonus, then stick the card away in a sock drawer.  And banks like Barclaycard have denied folks just because they haven’t been using their other Barclaycard cards!

Think of it this way – why should a bank consider issuing you new credit if you don’t use the existing credit they’ve given you at all?  So use your cards – even a tank of gas, grocery trip, or a restaurant meal here and there can make a difference.

4.   Other Debt

If you’re up to your eyeballs in mortgage payments, student loans, and car loans, banks might be reluctant to issue you a lot of new credit.

Why Do Banks Deny Credit Card Applications
If the Piggy Bank Is Already Almost Empty, You Might Have Trouble Getting New Credit

They’ll look at your total debt before approving your application, not just credit card debt.  And they’ll consider your ability to pay back what you’ve borrowed before they extend you more credit.

Remember, late payments will show up on your credit report.  So it’s important to pay all your bills on time (not just the credit card kind!).

5.   Annual Income or Household Income

There’s a limit to the maximum amount of credit each card issuer will extend to you.  Much of that depends on your income.

Whether it’s from your own employment or from others in your household, your income (your ability to pay back debt) is a huge factor in the bank’s decision.

Why Do Banks Deny Credit Card Applications
Banks Want to See You’ve Got the Resources to Pay Back Your Debts

Often, if you’ve reached the limit of total credit a bank will give you, your only choice may be to reduce credit lines on other cards (or cancel them altogether) if you want to be approved.  Kendra may want to consider calling the bank’s reconsideration line to see if she can get credit lines moved around.

That said, it’s a good idea to try to hang onto no-annual-fee cards.  Because keeping them for the long term will increase the length of your credit history and possibly improve your credit score.

Remember, even if you cancel a card, many banks will let you get the sign-up bonus again after waiting 18 to 24 months.

Are Capital One Cards Harder to Get?

Kendra asks if Capital One is stricter with their credit approvals.  I don’t often write about these cards because they’re not the best cards for Big Travel with Small Money.  That said, the Capital One® Venture® Rewards Credit Card might appeal to folks who’ve already gotten lots of cards with other banks.

It’s sometimes harder to get approved by Capital One because they pull your credit score from all 3 credit bureaus.  Usually, other banks only pull from 1 credit bureau.

So Capital One will see all of your recent credit applications, which can make things trickier if you’ve recently applied for lots of cards.  And because your Capital One application will show up on all 3 credit bureaus in the future, it might not be worth it unless you really want a Capital One card!

Why Do Banks Deny Credit Card Applications
Some Banks, Like Capital One, Pull Your Credit Report From More Than 1 Credit Bureau

I prefer the Barclaycard Arrival Plus World Elite Mastercard, because you get 2.1% back when you redeem points for travel.  And building a good relationship with Barclaycard means it might be easier to get approved for their other valuable travel cards.

Plus, it has a similar sign-up bonus and, like the Capital One Venture card, has no foreign transaction fees.

But Barclaycard can also be picky about issuing lots of cards!

My Advice

Kendra and her husband don’t have to quit!  They’ve only been applying for cards for ~7 months!

But it sounds like it’s time to slow down.  I’d suggest waiting at least 3 to 4 months before they apply for new credit, so that their credit scores bounce back.  And that way, there won’t be as many recent inquiries on their credit history.

There are always new cards to apply for!

Why Do Banks Deny Credit Card Applications
It’s Time to Take It Easy and Slow Down on Credit Card Applications for a While!

It might be a good idea to consider moving or closing some credit lines, but I like to wait at least ~11 months before cancelling a new card.  Banks don’t like it when you apply for a card, earn the sign-up bonus, then cancel right away.

And it’s best not to cancel your oldest cards (because they help your length of credit history).

Meanwhile, there are lots of ways to keep earning miles and points by using their existing credit cards!

Bottom Line

Applying for a lot of credit cards in a short period of time can make it hard to get approved for new credit.  And if you’ve reached the total credit limit that a bank will issue you (based on your income and other factors), you might have to close or transfer credit lines to get approved.

It’s best to be conservative and avoid applying for too many cards, especially if you’re new to credit cards.  Read my post about the dangers of applying for credit cards to learn more.

If you’ve gotten too enthusiastic, take a break from applying for credit.  Use the cards you have, manage your credit responsibly, and don’t carry balances.  In time, your credit score should bounce back and it will be easier to get approved.

Have you had trouble getting approved for new cards?  Please share your experiences in the comments.

Thanks for the question, Kendra!

Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

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Other than the Cap One Venture card, I don’t see the point in applying for Cap One cards. They don’t offer miles/points comparable to any of the other cards. The Venture card is the only Cap One card I’ve ever seen advertised on any of these points blogs. My wife and I also have a lot of credit cards, but we split the application process. She’ll apply for a bunch at once. A few months later I’ll apply. That way there’s always about a 6 month gap where one of us is not applying. The only card that consistently turned me down is the Barclay US Air card–turned me down 2x. They said it was because I have too many recent inquiries. Strange, because my wife has even more inquiries than me and she got approved with a $17.5K limit! And we both have the Barclay Arrival card.

I never had any issues with Cap One. I have a few business and a personal card (2% gift cards etc) that I use. They are a little strange and I dont have a great read on them. I have a business so sometimes utilization becomes an issue even though we pay everything in full monthly. A few times per year I have to sweep everything earlier in order to drop the utilization. I have a few Barclays cards. I find them to be weird. For a while I could not get additional cards from them. That changed about a year ago. Everyone gets a few denials. Sometimes you need to call recon for some card consolidation. What hurt the poster is alot of new credit. Wait 6-9 months before trying more. However if you can get some business cards that will help alot

From my own experience and what I’ve read, I believe Capital One targets lower-credit quality applicants, or at least those who carry greater balances on credit cards and installment loans.

For the last 5-8 years, I have applied for and been approved for 7-10 credit cards per year from AMEX, Chase, Citi, Barclays, etc. The only denial I received was from Capital One, which stated I had “too few credit card accounts with a balance,” as well as “too few or no revolving accounts with a balance.” About a month after that denial, they once again started up their bi-weekly solicitations, which continue to this day.

I really believe Capital One is primarily interested in only those who carry higher credit card balances. I don’t think the fact that they pull 3 credit reports is really the problem.

Does anyone else have any thoughts on Capital One?

During my most recent applications I did a 3BM with Chase and a 2BM with Bank of America. I got 2 instant approvals on Chase and the third a denial. Bank of America I got approved. I checked my credit report and sure enough only one hard pull for each bank. I also applied for and was approved for 4 other cards from 3 different banks. If you do them all at the same time and do the multiple browser method you have a much better chance of gettingore cards with less pulls and also approvals at the same time.

“I noticed you don’t promote Capital One cards on your website. Is it because they are difficult to get?”

LOL, Kendra…. you’re cute.

It’s because they don’t PAY him, Kendra.