5 Reasons Why Your Credit Card Application was Denied

If you’re applying for a new credit card, maybe even your first one, you may have a lot of questions. One major one could be: Can my credit card application get rejected? Will this hurt my credit score? What can I do to get accepted?

Credit card applications getting rejected is not something to be alarmed about. It can happen more frequently than you think, and there are definitely ways around this problem. But first, we will break down the five most common reasons why credit card applications might get declined or rejected and what you can do about it.

Related: 4 Key Questions To Ask Yourself Before Signing Up For A Credit Card

1. You Reached Your Credit Limit

For those of you who may not be familiar, a credit limit is basically a maximum spending capacity your bank sets on your credit card. This can be found in your card agreement and is usually on a per month basis. For instance, if your credit limit is S$10,000 per month, it means that if your expenses go above this value, these purchases will be denied and your credit score might fall.

You might be wondering: why do banks care when I’m not technically defaulting my loans and I pay back all the money on time? Think about it this way. Would you lend money to a friend who is known to owe S$10,000 to another person?

The best practice is to ensure that your spending does not go above 30% of your credit limit for each card. Once you hit the 50% mark, you’re in the danger zone. Banks may consider you a flight risk and this will cause your credit score to take a hit. This will in turn, play a role in the rejection of your credit card application.

Solution: Before applying for a new credit card, take a few months to adjust your spending habits and rack up a good credit score. Stick to the 30% rule and you should be fine. After that you can apply again and be confident in your application being accepted.

Related: Why You Should Avoid the Monthly Minimum Credit Card Payment Trap

2. Your Loan Balances Are Too High

If you’re recently taken out a loan to make a big purchase like getting a new house (congratulations by the way!), your loan balance might be a bit too high for card issuers to give you a new credit card just yet.

In a way, credit cards are like mini-loans, you make purchases using the bank’s money first before paying it back. Having existing debt is bound to make banks slightly hesitant to lend you more money. Same idea as before: would you lend money to a friend who doesn’t have enough to pay off their house and car?

Solution: Slowly begin to pay off your existing loans before applying for a credit card again. Consider paying off your loan early if you have the funds available but the bottom line is this: repay your debts on time and you’ll be well on your way to getting your next application accepted.

Related: How To Become Debt-Free in Singapore

3. Your Credit Score is Too Low

One of the easiest ways to get your credit card application denied is to have bad credit.

A credit score is essentially a bank’s way of ranking its customers in terms of how likely they are to pay back their loans, with AA being a gold star client who pays everything back on time and HH being you are more likely to default than anything.

Each credit card has a suitable credit score range, meaning that cards are typically only issued to those with credit that falls within the boundary. If you’re known to not be able to pay back money on time, financial institutes would be hesitant to loan you even more.

Solution: There are many ways to build up your credit score, and fast. Some have even gone from a DD to an AA score rating in 6 months. There are many ways to fix a bad credit score and you’ll be able to secure a new credit card before you know it.

Read Also: 5 Common Credit Mistakes That Can Affect Your Loan Application

4. Your Salary Doesn’t Meet Requirements

Most credit cards on the market today come with a minimum income requirement. This is another type of insurance that credit card providers use to ensure that you do not end up defaulting your loans.

While you can still be an irresponsible card user with a high income and a reliable customer with a lower income, most providers would think of a lower income client as more risk prone and may hesitate to approve their credit card application.

Solution: Consider alternative options.

Under MAS regulation, you must have a minimum annual income of S$30,000 in order to qualify for a regular credit card from a bank. If you are a student, you may be able to qualify for student cards such as the Maybank eVibes credit card or the CIMB AWSM credit card that has a much lower income requirement to cater to young people who have limited earning power.

On the other hand, if you are looking to open a credit card to fund a specific life event, such as a wedding or vacation, you may want to consider taking on a personal loan instead. Many personal loans have a lower annual income requirement. For example, the loan broker Lendela has a minimum monthly income requirement of S$1,200 (which translates to an annual income of S$14,400) to qualify for a personal loan.

Alternatively, if you are looking to apply for a credit card in order to earn rewards while you spend, you could also consider multi-currency cards like Revolut whose higher tiers allow you to earn up to 5% cashback on online shopping. You are even able to store the cashback earned in your revolut app in a designated account to put towards other savings goals. As Revolut is a debit card and not a credit card, there is no minimum income requirement to qualify to open an account.

Revolut

Revolut is a top tier multi-currency debit card with no annual fees. Gain access to additional features through their Premium or Metal Revolut Card Accounts.

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Pros

• All in one personal finance app - able to both spend and invest
• Access to a variety of currencies to exchange & store
• No ATM withdrawal fees on the first S$350 monthly

Cons

• Less competitive FX rates outside trading hours
• Some features only available on paid tiers

More Details

5. You Recently Applied for Many Credit Cards

Last but not least, another common reason why your credit card application could be rejected is if you have applied for other credit cards recently.

Essentially when you apply for a credit card, the bank will make a credit score inquiry to do their due diligence. However, everytime a bank makes a credit score inquiry, your credit score actually decreases. Imagine your boss’ boss randomly keeps checking in on your performance. Even if you are doing good work, your supervisor is bound to get suspicious.

Solution: Good news is that these drops in your credit score are really light, and your score can quickly recuperate quickly. In due time, you will be able to apply for a credit card and be successful.

Consequences of Getting Rejected

Will getting rejected now affect your chances of being successful in your future credit card application? This might be a major concern of yours but do not worry, there are no major consequences of getting rejected.

Due to the hard credit score inquiry your bank makes, your credit score may drop slightly in the short run, but is sure to bounce back in no time. Just make sure you give enough time between your applications for the credit score to organically increase.

Conclusion

All in all, there are many reasons why your credit card application might be denied. In this article we discussed the five most common reasons: reaching your credit limit, having low incomes, having high unpaid loans, having bad credit, or simply applying for too many credit cards. If you are unsure which exactly might be the main issue, contact your bank and they will be more than willing to provide you with further details.

As you build your credit score and wait for the next best application window, you can take this time to research the different credit cards on the market so that you have a better understanding one which card you should apply for. To make your life a little easier, you have curated a round up of the best cashback credit cards as well as the best miles credit cards in Singapore for your reference.

Read More:

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• A Basic Guide to Supplementary Credit Cards
• Which Travel Credit Card Gives You the Most Travel Perks?
• How To Fix A Bad Credit Score
• How To Maximise Credit Card Rewards And Beat Inflation

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