Over Half Of Americans Have Been Rejected For Credit—Here’s How To Get Approved
Demetrius Harrison, a 21-year-old college student and promotions specialist in Louisville, Kentucky, submitted his application for the new Apple Card around its debut in September. As a frequent Apple Pay user, with only one other credit card (a student card) to his name, Harrison thought it would be a great opportunity to build his credit.
The only problem: his application for the Apple card was denied.
And understandably so. With a TransUnion score of 562 (out of 850), Harrison’s credit score was too low to qualify for the Apple Card. His application also cited too many credit inquiries in the last 12 months, which he found to be frustrating—after logging into his CreditWise account, the only other recent inquiry on his report was for his apartment lease. Because of his $11,000 balance in student loans, the rejection letter also stated that his debt-to-income ratio was too high.
He’s not the only American who has faced the same disappointing reality; a new survey finds that over half of Americans have at some time been surprised to be rejected for credit.
Why People Are Get A Rejection Surprise
The survey, conducted in September by ScoreSense, a digital resource where consumers can access their credit scores from all three major bureaus, finds that consumers are getting denied credit for three reasons: Credit ignorance, having too many lines of credit or, conversely, not having any at all.
The youngest consumers were by far the most likely to suffer from credit ignorance, with 54% of Generation Z respondents reporting that they did not know their credit scores. Just 23% of Millennials, 20% of Baby Boomers and 18% of GenXers were unaware of their scores.
There are now dozens of ways consumers can access their credit scores on a routine basis—and for free. Fintech companies like Credit Karma and Credit Sesame now enable users to view their credit scores for free as soon as they log into the app; they also send notifications via push alert or email to inform users about changes to their score. For those who don’t want to give a third-party their personal information to access their credit score, pulling it for free once a year at MyFreeCreditReport.com is also an option. Certain credit card companies also offer their cardholders free access to their credit scores.
That’s not to say checking your credit score obsessively will be of service. Since credit reports from the three major credit bureaus—TransUnion, Equifax and Experian—are not updated daily, credit scores are not updated on a daily basis, either. TransUnion, for example, says credit reports are updated at least once a month or every 45 days.
Harrison, a member of Generation Z, monitors his credit score with CreditWise, a free credit report tool. He says he knew a rough estimate of his score when he applied, and though he knew his chances of getting approved weren’t high, he still went for it.
“I thought this was a great card (reasonable interest and above-average cash back) for less-than-casual use, and had some great perks,” Harrison says. “Besides, there was a lot of hype revolving the card when it launched.”
Having at least a general idea of your score can help guide you when determining which credit cards are worth applying for. Some credit issuers will include a “range for approval” on their webpage or in their terms and conditions. Since applying for the card will put a hard inquiry on your report—and could lower your score by a few points—checking first if you fall into the approval range will help prevent any surprise application denials.
Having the wrong mix of credit cards is also hurting consumers when it comes to accessing new credit. The survey finds 38% of Americans have three or more credit cards; Boomers have six or more. There’s no magic number for how many credit cards a consumer should have; much of it depends on personal preference and building a suite of cards that suit an individual’s needs. What’s important is to keep your overall credit utilization below 30% to avoid negative marks to your overall score.
On the other hand, more than one-fifth of Americans between the ages of 18 and 54 don’t have any credit cards at all.
“From a credit perspective, maintaining more than three credit cards can potentially lower your standing,” ScoreSense writes in a press release for the survey. “But holding no credit cards whatsoever can also reflect poorly.”
How to Improve Your Credit
Harrison says he wasn’t surprised when he was denied for the Apple Card, noting that it seems to be suited for the “upper-middle/high class.” But he does have qualms about credit in general and how difficult it is to build a score.
“It’s just frustrating how credit works—your number seems to reflect how you qualify as a person,” Harrison says. “My credit isn’t terrible, it’s just nearly nonexistent. I’m 21 and a college student.”
For individuals who are just starting out and have little to no credit, there are options for building a credit score from scratch. Secured credit cards, for example, are lines of credit that are backed by a deposit put down by a cardholder so they’re of little risk to a lender. These specific credit products help a consumer build credit by making all of their payments on time. Some of these cards also allow holders to upgrade to an unsecured card after showing some period of responsible usage.
Those who have established credit but have seen it take a dip because of missed payments or amounts being sent to collections also have ways to build their scores back up. Secured lines of credit are a great option, but some individuals might be wary of opening up a new credit line. Instead, paying bills on time and hacking away at debt to lower your debt to income ratio can be a good start.
Harrison doesn’t expect to apply for another credit card anytime soon, mainly because he pays for most of his purchases in cash. Once he graduates from college next year, he hopes to remain mostly debt-free while he pays off his student loans. But he still finds credit scoring confusing—and somewhat unfair.
“I am, however, moving out of my apartment in February, and renting a house with two friends,” Harrison says. “I guess Apple can expect another hard inquiry on my report then.”
Source: Kelly Anne Smith of Forbes.com