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Here’s what to do if your credit card application is denied in Canada.
You’ve applied for a new credit card, hopeful for the convenience and benefits it could bring, only to receive notice that your application has been declined. It’s a situation that may stir up a mix of emotions—frustration, confusion, and perhaps even a bit of embarrassment. But rather than brushing off the rejection, it’s important to understand why you might have been declined. This will help you gain valuable insight into your financial health so you can take proactive steps to improve your credit for your next credit card application. Not doing so could limit your financial options down the line.
Not sure where to start after having your credit card application declined? We’ll walk you through the possible reasons why your application was rejected and the steps you can take to enhance your chances of securing credit in the future.
If your credit card application is declined, it’s helpful to understand why the lender might not have approved you for new credit at this time. A credit card application can be declined for a variety of reasons, including one or more of the following:
Those with a history of negative marks to their credit score may encounter challenges in obtaining new credit cards. Each credit card has its own required credit score range. If your credit score doesn’t meet the minimum requirement, the lender will likely reject your application.
Your credit score is calculated by credit bureaus that convert information on your credit report to a number based on something called the FICO formula. Before applying for your next credit card, take a moment to check your credit score (refer to step 2 below for instructions on how to do that) and understand where you fall within the FICO ranges. This can help you gauge how potential creditors might view your creditworthiness—whether it’s categorized as poor, fair, good or excellent.
When applying for a credit card, you will sometimes need to share your income and monthly housing costs as part of the application process. While people at all income levels can use credit responsibly, certain lenders may see those with a lower income as too much of a default risk, especially if they also have high rent or mortgage payments.
Not all lenders request income. However, those that do may be concerned you won’t be able to meet your minimum payments if your housing costs are nearly as high as your income. Lenders may also be hesitant if you’re not already making the minimum payments on your current debt. Payment history—how timely you’ve made payments on past and current debt—accounts for 35% of your credit score. Any missed payments or payments that are less than the minimum amount may drop your score, impacting what credit you can obtain.
If you’re just starting to build your credit, you’ll find you likely don’t qualify for most unsecured credit cards that offer low interest rates or rewards. Instead, you may have to start with a student card, store card or secured card while you build up your credit. This is because credit history—the length of time you have been using credit—makes up 15% of your credit score. It’s difficult for lenders to evaluate how well you manage borrowed money if you have a limited credit history.
Most credit cards require you to not have declared bankruptcy in the past seven years. If you’ve recently been bankrupt, make sure enough time has passed before you apply for new credit to ensure your application won’t be automatically declined.
Having a delinquency on your credit report can also make it more challenging to get approved for a credit card as banks see you as a high-risk applicant. Whether you’ve missed a payment or experienced a financial setback that led to your debt going to collections, having a delinquency on your record can significantly impair your credit score and make it very hard to get approved for most credit cards. So, if you do have a delinquency on your report, work to resolve the issue and settle any amounts in collections before applying for new credit.
Applying for several credit cards in a short time can be a red flag. Lenders can view this as a sign of desperation for credit and worry that you’re borrowing more than you can handle, which could affect your ability to make the minimum payments.
In addition, every new credit-card application generates a hard inquiry that will lower your credit score. Hard credit inquiries account for 10% of your credit score so it is important to only apply for new credit products you need, one at a time. If you’re rejected for a credit card, wait between three and six months before reapplying to limit the impact of hard inquiries.
If you already have a lot of debt through loans, mortgages and high credit-card balances, opening a new credit card could be seen as a warning sign to lenders that you are having problems paying down your existing balances. They might flag you at a higher risk of defaulting and reject your application.
When it comes to assessing your creditworthiness, lenders focus not just on the amount of debt you owe, but also look at how much of available credit you’re using. This is known as credit utilization, which makes up 30% of your credit score. Try to keep your utilization under 30% of available credit for maximum positive impact on your score. For example, if you have $10,000 in total credit available to you, try not to carry a balance of more than $3,000 at any given time. This shows lenders you can manage your credit responsibly.
If you’ve been turned down for a credit card (even if you have an excellent credit score), but have no debt and a clean payment history, it’s worth checking your credit report for errors. Incorrect payment details could be affecting your credit score—and, in turn, your eligibility to get approved for new credit.
You can identify this by reviewing your credit report regularly to see what’s documented and make sure the information is correct. For no charge, you can remove incorrect information by filing a dispute directly with the credit bureau.
In Alberta, Saskatchewan, Manitoba, Ontario, Quebec and Prince Edward Island, you must be at least 18 years old to obtain credit. In all other provinces and territories, the minimum age is 19. If you don’t meet these age requirements, your credit card application will automatically be denied, so hold off until you are eligible.
“Churning” credit cards means applying for a lot of cards to get sign-up bonuses, then cancelling them soon after. If banks notice you’ve opened and closed many accounts, they might see you as a credit card churner and be less likely to provide you with more credit. This could hurt your chances of getting approved for credit in the future when you actually need it.
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Now, here’s what to do if you’ve been rejected for a credit card.
If your credit card application is declined, it’s important to first contact the credit card issuer and find out why. Their reasoning may be noted in the rejection notice, so be sure to carefully review it for any explanations. If not, call the issuer and ask. Once you find out why you were denied, you can address those issues before reapplying.
If your application gets turned down, your credit history might be a factor. Having numerous missed credit-card payments or past encounters with debt collectors could deter lenders from granting you new credit. If this is the case, be sure to get a copy of your credit report to verify. Checking your own credit report does not lower your credit score since you are requesting the information for personal reference, known as a soft inquiry.
It is important to review your credit report and score at least once a year. You can obtain your credit report and score through Canada’s two credit bureaus, Equifax and TransUnion, a third-party service such as Credit Karma or Borrowell, or your bank’s website or mobile app. If you spot any errors on your credit report, submit a written dispute to the credit bureau. Even if there are no mistakes, the report provides an overview of your accounts, offering insights into how to enhance your credit and manage debt so you can make sure you have a better chance of getting approved.
Your credit score indicates creditworthiness for lenders, meaning it influences what credit you qualify for, the loans you can obtain, the interest rate you’ll pay and maybe even where you work and live. Because of this, monitoring and understanding your credit is one of the most crucial financial habits you can build.
Checking your credit score regularly allows you to make sure the information in your report is correct and take note of areas where you can improve. If your credit card application is declined, use it as an opportunity to improve your credit score. This can be done by making at least the minimum payments (and preferably more) on your existing accounts by the due dates, paying down the balances on any accounts where you’re carrying one and holding off on applying for additional lines of credit that could result in a hard inquiry. A hard inquiry occurs when you apply for a loan or a credit card and the potential lender reviews your credit history. Any time your credit experiences a hard inquiry, your score will drop a few points.
If your application is declined, don’t apply for a new card right away. Every credit-card application results in a hard inquiry on your credit report, which will affect your credit score. Because of this, you should wait a few months before reapplying for a new card and work to improve your credit score in the meantime. This will ensure you have a better chance of getting approved next time.
When you are ready to reapply, you may want to consider a different card that better fits your credit profile. The previous card may have had certain restrictions that caused the rejection. Be sure to take the time to research and find the best card that suits your budget, spending habits and financial goals. Try MoneySense’s credit card comparison tool to help you compare options instantly.
Regardless of the reason why, don’t let a declined credit card application discourage you. Instead, let it motivate you to improve your financial behaviours.
Take corrective action by carefully reviewing your credit report for errors and promptly addressing any discrepancies. Explore credit card options within your credit score range and work towards improving your credit score. By proactively managing your credit health through responsible financial habits, you can improve your chances of securing a credit card in the future.
As professionally certified credit counsellors with Credit Canada, we can help you understand your credit and offer personalized advice on how to address debt. If you need support, contact us today to book a free credit-building counselling session.
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Created By
Credit Canada
Created By
Credit Canada
Created By
Credit Canada
