Here are the three most common reasons your credit card application may have been rejected and how to overcome them.
I recently applied for a new credit card and was rejected, and it got me thinking. The bank gave no reason why, and it left me feeling a little unsure about my personal finances—a sentiment shared by many in the same situation.
As one of our readers put it:
‘After applying for Commonwealth and Qantas Amex cards, both became rejected. I don’t really understand why, I’m earning about $63000 a year, and I have no mortgage, and strangely enough, a flawless credit history. The most irritating thing is neither firm explained why I was rejected. Do you have any suggestions?’
It’s the classic ‘Catch 22’ of the credit card world. The banks won’t tell you why your application has been denied and with each rejection your chances of getting approved down the track take a beating.
The banks may offer a cursory explanation, but finding out exactly why you’ve been knocked back isn’t easy unless you’re prepared to do some serious digging. Word on the street is banks have over 30 criteria which are grounds for an application being rejected. There’s a mound of bureaucratic dung you’ve got to shovel through to get to the reason why you were unsuccessful in the first place.
For everyone who doesn’t work for a bank, the approval process is a tricky one to figure out; however, we pulled some strings, crunched some numbers and got to the three common reasons why online applications are denied.
When applying for a credit card, what do banks looks at?
Adverse bureau means your credit history is not up to scratch. If you have had issues with lenders in the past, this is probably the reason why your application was denied. Defaults, late payments, bankruptcy and successful and unsuccessful applications are all recorded by a credit reporting agency database—usually Veda—and are available to lenders to see when you apply for credit.
The type of credit default dictates how long it will stay on your credit report. Bankruptcy will hang around for seven years, while writs are gone after four.
- Four years: writs and summons
- Five years: credit applications, enquiries, overdue accounts and overdue accounts listed as payment defaults and court judgements
- Seven years: overdue accounts listed as a clearout and bankruptcy claims.
Preventing a rejection based on adverse bureau
There’s only so much you can do if your credit report is suffering from a couple of bad dings. One option is to wait for the passage of time to remove the defaults from your file, but this will take years and will leave you without access to credit. Another option is using a credit repair service. They work by removing the negative items from your credit report. Sometimes there are outdated, incorrect or duplicate entries that can be easily removed and make a dramatic difference to your chances when applying for credit. Other errors will be harder to amend and may cost a bundle to get fixed, so how much a credit repair service can do for you depends on your personal situation.
Failed point score
A failed point score is where I went wrong with my application and, as the top reason for failed applications, it turns out this is where most other people fall down too. A failed point score means the information you provided didn’t meet the banks required criteria for who can and can’t service a credit card.
Jane Drew from American Express says that when it comes to assessing credit card applications, lenders will make a decision based on a number of factors including the applicant’s income, employment status and credit history.
“Lenders will look at all of the information an applicant provides on his/her credit card application to determine whether to approve or decline the request for credit. When making this assessment the lender is essentially determining the applicant’s capacity to meet the terms of the agreement.”
“The criteria used will vary from product to product and lender to lender. A failed point score essentially means that the applicant has not satisfied the criteria by which the lender has set,” Drew says.
Institutions like Bankwest work on a system where your credit history is combined with the bank’s risk assessment. Their risk assessment is determined by the information you provided in your application and is used to find the ratio of your assets to liabilities.
Banks look at a number of things to work out your risk assessment. Information like how long you have been employed; your annual income; how long you have lived at your current residence; how much rent you pay; the value of your household assets, including car, electronics, and personal goods; and whether you have any outstanding balances on your credit card(s) are all used to see whether you can service a credit card debt.
You want to put your best foot forward, and after doing some investigating into my rejected Bankwest Breeze MasterCard application, apparently it pays to puff out your chest. Here are a couple of tips I uncovered.
Tips and tricks for inflating your point score
When you list your assets and liabilities, try your best to ensure your assets significantly outweigh any debt. It’s not a matter of lying, but instead doing some smart thinking and spending time to properly note down and value your assets.
For instance, I said that I had a credit card with a $4,000 debt and only $8,000 worth of personal assets – this is a debt ratio of 50% and is a weak figure in the eyes of the bank. Here’s some of the factors that contribute to your debt to asset ratio and a couple of inside tricks I picked up on the way.
Only list your portion of the rent or mortgage repayments
When I gave them information about rent payments (I live in a share house), I put the total rent for all members. This is a common oversight. If you live with flatmates only include the actual amount you pay on your application form. If you live with your partner, cut the rent or mortgage payments by half.
Before you apply for any credit card, be sure to have been with your employer for a minimum of four months. If you have been at your job for less, lenders will require a letter from your work saying you have finished probation – the annoying thing is that they don’t ask for this if you complete an online application and when I approached Bankwest, they listed this as one of the reasons why my application may have been denied.
After my application was denied, I went and spoke to a Bankwest employee directly. An interesting point came up about how much I should have told the bank about the value of my personal possessions.
Listing personal possessions under $10,000 seemed a bit odd to everyone I spoke to (I just got back from Europe and I’m not exactly swimming in cash), but it’s important to think of everything. Add up the value of all of your material assets, everything from surfboards to computers.
Order a copy of your credit file
Receive email alerts whenever specific changes occur on your credit file for 12 months. You also receive a copy of your credit file despatched within one working day.
Receive your credit file with information on:
- Details of consumer credit enquiries
- Details of overdue consumer credit accounts
- Commercial credit enquiries
- Details of overdue commercial credit accounts
- Bankruptcy & Court Judgements
- Writs & Summons
- Information on your current relationship with a credit provider
Each time you apply for a credit product, whether successful or unsuccessful, the application is recorded on your credit file. Naturally any lending institution can see how many refused applications you’ve had in the past, so don’t go overboard applying for credit cards if your last application was rejected and you’re not confident that your next one will be successful.
Katherine Craig from credit reporting agency Veda says just this.
“Credit reports don’t show the type of credit, whether it was actually granted or taken up, what its current credit limit is or if it is now closed. Too many applications for credit can impact a lender’s view – it may appear to them that you have a lot more active credit commitments than you actually do.”
She raises an interesting point here. The longer the gap between applications or enquiries on your credit report, the better. I applied for a credit increase from St.George 10 days before I applied for a credit card with Bankwest. Even though I got a credit increase, to a bank that’s simply two applications in two weeks – which, let’s face it, doesn’t look great.
What about a credit union?
When it comes to getting approved, the major lending institutions use an automated system whereby your application is fed into the bank’s internal credit scoring system, which runs a risk analysis and spits out a positive (approved) or negative (declined) result. If you feel that your credit file doesn’t properly represent where you are financially, a credit union may be a better option to consider for your next application. A successful credit application followed by a clean sheet shows you can service a debt. Some of the smaller credit unions go through each application by hand. And according to Marcus La Forgia of People’s Choice Credit Union, although they still take into account the same criteria when judging an application, the manual process may just be the difference between a successful application and another black mark against your credit file.