Why People with Good Credit Can Get Denied for Credit

28 October 2024

Having Good Credit Doesn’t Always Guarantee Approval

You’d think that having a good credit score would mean you’re automatically approved for any credit card or loan you apply for. Unfortunately, that’s not always the case. While a credit score in the “good” range (670-739 according to FICO) can certainly help, it doesn’t guarantee approval.

Lenders look at much more than just your credit score. Factors like your income, the amount of debt you’re carrying, and even how long you’ve had credit all come into play. So, if you’ve ever been denied credit despite having a solid score, you’re not alone. Let’s break down some of the common reasons this happens and what you can do about it.

1. Different Credit Scoring Models May Be Used

One thing to keep in mind is that lenders might not be looking at the same credit score you are. While FICO is the most commonly used credit scoring model, there are many versions of it, and some lenders may use a different model altogether like VantageScore.

This can cause your credit score to vary depending on the scoring model being used. For example, your FICO score might be 700, but the lender could see a VantageScore of 680 based on the same credit data. Each model weighs things slightly differently, and it can impact the result you see versus what the lender sees.

Tip: Before applying, check which scoring model the lender uses so you can get a clearer picture of where you stand.

2. High Debt Utilization or Debt Burden

Your debt utilization ratio is a major factor lenders consider. This ratio compares how much debt you have on all your credit accounts to your total available credit.

Let’s say your total credit limit across all accounts is $10,000, and you owe $5,000. That’s a 50% utilization rate, and lenders typically prefer it to be below 30%. A higher utilization rate can signal to lenders that you may be stretched too thin.

On top of that, your overall debt burden, which is how much debt you carry in relation to your income, can also affect whether you’re approved. Even with a good credit score, a lender might hesitate if you have a high debt-to-income ratio because they worry you won’t be able to handle more debt.

Tip: Aim to keep your debt utilization under 30%. If possible, pay down some debt before applying for new credit to improve your chances.

3. Employment and Income Concerns

While your income doesn’t directly affect your credit score, it’s still a critical piece of the puzzle when lenders decide whether to approve you. Lenders want to see that you have a stable and reliable income, and they’ll often compare your income to the amount of credit you’re asking for.

For example, if your annual income is $25,000 and you’re applying for a $10,000 credit limit, a lender might think that’s risky, even if you have a great credit score. On top of that, if your income is irregular or unpredictable (like with freelance work), lenders may be even more cautious.

Tip: Be prepared to show proof of stable income when applying, and make sure you’re asking for a credit limit that fits within your income range.

4. Too Many Recent Hard Inquiries

Whenever you apply for credit, lenders do what’s called a “hard inquiry” on your credit report. One or two hard inquiries usually won’t hurt your score too much, but if you’ve had several recent inquiries, it can start to raise eyebrows.

Lenders may see multiple hard inquiries in a short time as a sign that you’re in financial trouble or desperate for credit, which can lead to a denial. Even though hard inquiries only account for about 10% of your credit score, they can still make a difference if you’ve been applying for a lot of credit lately.

Tip: Try to space out your credit applications to avoid too many hard inquiries at once. Give yourself a few months between applications to avoid looking “credit hungry.”

5. Short Credit History

Your credit score isn’t just about the number, it’s also about how long you’ve been building your credit. Lenders prefer to see a longer credit history because it gives them more confidence in your ability to manage credit responsibly over time.

If you’ve only been building credit for a few years, a lender might hesitate to approve you, even if your score is good. Many lenders look for at least seven years of credit history to feel comfortable.

Tip: If your credit history is short, be patient and continue making on-time payments to build a strong track record. Over time, this will help boost your chances of approval.

6. Issuer Restrictions or Target Audience

Sometimes, a credit card or loan may have restrictions that go beyond your credit score. Some issuers target specific audiences, such as people with high incomes or certain business categories, and if you don’t fit the profile, you could be denied.

In addition, some credit card issuers have rules about how many cards you can have with them. For example, Chase limits how many cards you can apply for if you’ve opened several accounts in the last 24 months.

Tip: Before applying, do some research to understand the specific requirements for the credit card or loan you’re interested in.

7. Derogatory Items on Your Credit Report

Even with good credit, old negative marks like bankruptcy or foreclosure can still impact your chances of approval. While these items hurt your score less as they age, some lenders may still consider them, even years after they occurred.

For example, a bankruptcy may stay on your credit report for up to seven years. Even if your score has recovered since then, some lenders might still be hesitant to approve you because of that past history.

Tip: If you have derogatory marks on your credit report, give them time to age off. If there are any errors, dispute them to get them removed.

8. Credit Score Not High Enough

Even though a score in the 670-739 range is considered “good,” it might not be high enough for certain premium credit cards or loans. For example, credit cards with big rewards or sign-up bonuses often require a score closer to 750 or higher.

If your score is on the lower end of the “good” range, a lender might still deny you if they’re looking for applicants with excellent credit.

Tip: If you’re aiming for a premium card or loan, consider waiting until your score improves. Paying down debt and continuing to make on-time payments will help push your score higher.

Have Questions? Contact Global Credit Repair Today for Credit Guidance

As you’ve seen, getting approved for a credit card or loan is not as straightforward and easy as many people assume. Having a good credit score is definitely an advantage, but it’s not a guarantee of approval. Lenders consider many factors when deciding whether to approve your application, including your debt levels, income, credit history, and recent credit inquiries.

If you’ve been denied despite having good credit, don’t lose hope. Focus on reducing your debt utilization, avoiding too many hard inquiries, and building a stable financial profile.

Our team at Global Credit Repair is here to help you navigate the complexities of credit and improve your chances of approval. Contact us today for a free consultation and let us help you get back on track toward getting that credit card or loan you’ve been aiming for.