Week six of the rewards refresh: What if your credit card application was rejected?

Welcome to the sixth and final installment in our quest to identify the best credit card for you. Don’t worry if you missed anything. There’s still time to review part one (sorting through the cards you already have), part two (examining your spending habits), part three (prioritizing the right rewards), part four (considering perks beyond rewards) and part five (time to actually apply!).

Ideally, you now have a shiny new credit card that’s perfectly suited for your lifestyle. Maybe it includes a sweet sign-up bonus, ongoing rewards that match your spending habits and other compelling benefits like airport lounge access, extended warranty coverage and more.

If that’s the case, then our work is done here. At least until it’s time to apply for your next card. You should probably do that at least six months from now, since you don’t want to apply for too much credit all at once. Doing it sooner could negatively impact your credit score and make you look like a risky borrower.

But in six to 12 months, it would be a great idea to reassess your credit card portfolio and take another swing at a sign-up bonus and a fresh card that fills a hole in your financial lifestyle. Things change, and your credit cards should too.

But what if this isn’t such a happy recap?

Check out all the answers from our credit card experts.

Ask Ted a question.

Steps to take if you were denied credit

First of all, don’t panic if you were denied credit. This certainly isn’t an ideal situation, but you have options. Sometimes you can even get the denial overturned by pleading your case to the card issuer’s reconsideration department.

When you’re turned down for credit, the lender is required to tell you why, and you should definitely dig into that explanation. You might learn something important that you can act upon, such as your debt-to-income ratio is too high or there’s an error on your credit report. You might also find that your credit history is too short or you have too many delinquencies in your credit file.

There are a lot of steps that you can take to improve your credit score. To summarize, building (or rebuilding) credit mostly boils down to two major themes: filling your credit reports with good information and waiting for negative items to fall off or for enough positive information to accumulate. Depending on what’s dragging you down, the fix could be relatively quick or it could take a few years. In most cases, you can significantly improve your credit score within six to 12 months.

While you don’t want to rack up too many credit applications in short order, it might be worth applying for one more credit card in the near term. That’s especially true if you could use a credit card as a tool to improve your credit score.

Secured cards are similar to safety schools in the college admissions process – you might have initially set your sights higher, but if your dream school (or credit card) turns you down, you don’t want to be left empty-handed.

How secured cards work

A secured card typically requires the cardholder to put down a deposit that serves as the credit limit. The cardholder is expected to come up with additional funds to pay the charges off each month (hopefully in full to avoid interest).

It’s a low-risk proposition for the card issuer because if it doesn’t get paid back, it can keep the deposit (but as a consumer, please don’t let it come to that, because it can hurt your credit score and lead to additional fees). Secured cards are easy to qualify for and they can help you improve your credit score.

Often, after six to 12 months of positive payment history, the secured card issuer will refund your deposit and upgrade you to an unsecured card (what most people think of as a traditional or “regular” credit card). Even if you don’t get an upgrade from your secured card issuer, using a secured card properly should boost your credit score. And you could consider closing the account and getting your deposit back once you’ve moved on to bigger and better things.

This strategy works best for credit newbies and prior credit users with significant blemishes (such as late payments) on their records. If you’re interested in a secured card, look for one that reports to the three major credit bureaus and doesn’t charge an annual fee. Examples include the Discover it® Secured Credit Card, the Capital One Platinum Secured Credit Card and the Citi® Secured Mastercard®.

Bottom line

One of my brothers followed this blueprint. His first credit card application was rejected, essentially because he was a young adult who didn’t have much of a credit history. But he made good use of the Citi Secured Mastercard and within a year he was approved for the Citi® Double Cash Card, which is one of the best cash back cards on the market.

Have a question about credit cards? E-mail me at ted.rossman@creditcards.com and I’d be happy to help.