You’ve picked out what you think is the perfect secured credit card. It has the deposit limit you’re looking for, the right annual fee, and it even offers rewards. Imagine your surprise when the company denies your application. Can that even happen with a secure credit card?
Unfortunately, the answer is yes. But a rejected application doesn’t mean there’s no way forward.
What to Do if You’re Denied a Secured Credit Card
First things first: Don’t get too bummed out. Credit card denials happen all the time. According to a 2022 Salary Finance survey, 33% of polled applicants were denied credit cards in the past year. But there are simple steps you can take to make sure you find a solution that works for you.
1. Determine Why the Credit Card Company Denied Your Application
If you get a denial letter, your first question is likely why. Credit card companies want your business, so there’s usually a clear reason. Check your initial notification for the legally required explanation. It may be near the words “adverse action” or “adverse action notice.” But if you still have questions, you can call the customer service line and speak with a representative.
While you’re less likely to face denial when applying for a secured credit card, there are still a few reasons you could get rejected.
- You didn’t meet income requirements. Even with a secured credit card, you’re still required to meet a minimum income threshold. Credit card companies want to know you can pay them back, and that requires a consistent form of income.
- There was an identity verification issue. If the credit card company can’t verify you’re the one applying, they can’t approve the application.
- You have too much debt. If you already have high debt, credit card companies are often weary about allowing you to take on more. You can read more in our article on debt-to-income ratio.
- You don’t have a good enough credit score. Yes, even some secured credit cards have a minimum credit requirement. This requirement is often low, but if you still don’t hit that number, it signifies to credit issuers that you may not be able to manage credit.
- You can’t pay a deposit. Most secured credit cards require a deposit. That’s what secures your credit line rather than your credit profile. If you can’t come up with the money (often a few hundred dollars), you don’t qualify for the card.
2. Review Your Credit Report
It’s becoming more common for secured credit cards to require no credit check at all. Still, some do. If an issuer denies you due to a poor credit score or history, your first step is to get your hands on your full report.
By law, you can get full credit reports from all three agencies once per year at AnnualCreditReport.com. However, at the beginning of the COVID-19 pandemic, the three major bureaus began offering weekly credit reports, which you can still access for the time being.
Look through the report, checking for any errors, such as misreported debt amounts or incorrect debt collections bills. Verify everything in your report is 100% accurate. These errors — particularly if they relate to misreported debts — can lead to a denial.
3. Address Credit Issues or Errors
If you find any, disputing credit report errors is the next step. Submit disputes either online through Equifax, Experian, and TransUnion’s sites or by mail. The Consumer Financial Protection Bureau has dispute forms for each credit union.
If you received a denial because your credit score is too low and disputing errors doesn’t raise it, you have options.
One way to raise your credit score quickly is to pay down debt as fast as possible. That’s easier said than done, but checking off your debts one by one can help improve your credit score.
There are several strategies to help you pay off debt fast. For more information, see our article on the avalanche, snowball, and snowflake methods.
4. Consider Alternative Credit-Building Options
At the end of the day, a denial may mean a secured credit card isn’t the right option for you. Thankfully, secured cards are far from the only credit-building product on the market. There are alternatives, such as:
- Credit-builder loans. Credit-builder loans are a unique product designed to help you build credit from scratch or rebuild poor credit. Unlike a traditional loan, you don’t get access to the funds until after you’ve already paid it off. In the meantime, your lender stores your money and reports your (hopefully timely) payments to credit bureaus.
- Becoming an authorized user. An authorized user is someone who has access to another person’s credit card but doesn’t bear the responsibility of paying it off. If you become an authorized user on a family member’s card, your credit can benefit from their on-time payments.
- Store credit cards. Some store credit cards don’t require credit checks or have few credit requirements, making it easier to get approved. Pick a store you visit frequently, such as Target or Walmart, and put your usual purchases on that credit card, making sure to pay it off regularly.
5. Reapply or Explore Other Secured Credit Cards
Despite all your research, you may not have applied for the right secured credit card. There are dozens to choose from, and approval may be a lot easier if you apply for a different one.
If it’s a credit issue, focus on secured credit cards with no credit requirements, such as the Discover it Secured Card and Capital One Platinum Secured.
If it’s providing income information you’re worried about, first consider whether a credit card is right for you and whether you can handle regular payments. That said, cards like the OpenSky Secured Visa Card have a high approval rate and very few qualification requirements.
If the card you originally applied for is the secured card of your dreams, your best bet is to improve your credit or fix the issue that caused your denial and try again later. With a few months of dedicated work on your score, you are more likely to get the approval you’re looking for.
A credit card denial is far from the end of the world, though it might feel like it for a second. There are reasonable steps you can take, such as improving your credit, applying with a different lender, and addressing any potential errors on your credit report.
Also, think about alternative credit card options. Although a secured credit card can seem like the obvious first option when you have bad credit, there are unsecured credit cards for bad-credit customers, student credit cards for college students who want to start building credit, and even prepaid cards for those just looking for something swipeable to pay with.