A little over 5 years ago we started on a really bizarre journey of collecting credit card points. It's kind of an odd thing to say, but it's fun. There's something about traveling for nearly free that is exciting, and it's probably the fact that we wouldn't be able to travel nearly as much, or as far, or as luxurious without credit card reward points.
This post isn't about collecting points though. It's about the rejection letter that Chase sent us after trying to start our rewards journey with the Chase Southwest Airlines card, and what we did afterwards. These next steps are important, because 5 years later we have 22 credit cards, and over $200,000 in available credit. This didn't happen by making a million dollar salary, it happened by making calculated smart credit choices.
What to Do When You Are Declined for a Credit Card
The first thing you're going to do is feel bad. Getting rejected sucks. We lived through high school and took about all of the rejection we could handle. (Thanks a lot Sarah.) We don't need banks not wanting to take our money too.
After getting over the initial disappointment, it was crucial to understand why we got declined. In Chase's decline letter they noted our credit score was 637. We didn't really know what this meant at the time, and with 50% of Americans claiming that they were never taught credit, we were not surprised to fall into that camp.
This is when we decided to check our credit score. Sites like Credit Sesame offer free tools to get your credit score and report. The report will break down what is impacting your credit score. For us, the biggest impact was Sallie Mae reporting a whopping 15 loans as being paid late.This was pretty amusing (not at the time), because our loans were in forbearance and the payment had been $0. Apparently we had failed to pay $0 on time. Yay government.
Keep in mind that sites like Credit Sesame will give you your Vantage 3.0 score, and most banks use your FICO score when determining if your application is approved. Free credit score sites are great to help you monitor your credit progress month to month, and to make sure your information is correct. When it comes to your actual score though, they can be garbage. It's not uncommon for Vantage and FICO scores to vary by up to 100 points. They weigh items in your credit profile differently for scoring - just keep that in mind.
Once we realized that the information on our credit report was incorrect, the next step was to file complaints with the three major credit bureaus to have the incorrect information removed. This was a super painless process and can be completed online for Equifax, TransUnion, and Experian. The whole dispute process took a couple of weeks and once the incorrect information was removed, our score jumped about 80 points. Hello 700 club.
From there, we slowly applied for new credit cards every six months or so. Once we hit the 6th month of on time payments we requested credit limit increases. Gradually, we worked our way up to over 20 cards with an average credit line of $10,000 each on a salary inline with the average Americans. Your credit score is a function of math, and as long as you understand the equation, you can stack the numbers in your favor.
My Information is Accurate, but My Score Still Sucks
While our fix was fairly easy and had a happy ending, everyone's score is going to require a different level of effort to correct. Here are some other factors that may be impacting your credit score and some possible solutions.
1) Your available debt to balance ratio is too high. You never want to have more than 30% of your available credit in use, and less than 10% is ideal. This means if you have a $2,000 credit limit, you never want to carry more than $600 on your card past your payment date. Not only will you pay crazy interest fees, but this makes up 30% of your overall score.
- Pro Tip - Always try to pay off your balances, but if you find yourself carrying a balance, consider asking for a credit limit increase, or open a secured credit card to increase your overall available credit. Don't let the additional credit line tempt you though. Use it as a tool to keep your utilization under 30% and watch your credit score go up.
2) You have late payments. Payment history makes up 35% of your score, so this one is a killer.
- Pro Tip - Make sure you make all of your payments on time, at all costs. Payments that are 30-60 days late will drop your credit short term if it is an isolated incident, but payments later than 60 days or a pattern of late payments will crush your score for the immediate future.
3) Not having much credit at all. The types of credit you have makes up about 10% of your score.
- Pro Tip - It's best to have at least one installment account (loan) and one revolving credit line (credit card) on your credit profile. If you're looking for options, here's a list of options for building credit.
Don't let getting declined for a credit card ruin your day. Take control, figure out the problem, come up with a solution, and get the credit you deserve. You got this.