Have you recently gotten turned down for a credit card, loan or apartment rental? If so, you’re one of many Americans who can add credit denial to the long list of hardships this year has brought.
A new poll from Bankrate shows 21 percent of U.S. consumers have had an application for credit rejected in the middle of the coronavirus pandemic because a credit card company, lender or landlord deemed their credit score too low. (See survey methodology.)
A recent rejection may simply be a sign of the times. Lending standards have tightened in 2020 due to the pandemic and related economic uncertainty, says Bankrate.com industry analyst Ted Rossman. The crisis has hit the credit card industry especially hard since employment and economic trends strongly impact unsecured debt, he says.
Millennials (ages 24 to 39) have been the generation hit hardest by the current credit climate, with 32 percent rejected for credit this year, the survey found.
One 27-year-old Denver area entrepreneur, Hannah May, says she got turned down by a big bank for an auto loan in April when she tried to buy the Subaru she was leasing. She also got denied a business credit card.
But she really needed a car to drive clients around and make other work trips. So she asked her dad to co-sign the loan and then got approved. She says both credit denials made an already rough year even more stressful.
“Whenever you have to reach out to a parent for help, it’s a shot to your pride,” she says.
Who can’t get credit right now?
Credit card applications have brought the most rejections in 2020 compared with other types of credit. Of the 21 percent of consumers who reported being denied credit so far this year:
- 13 percent have gotten rejected for a credit card
- 5 percent have been turned down for a car loan
- 3 percent have gotten a “no” on a mortgage application
- 3 percent have had the door closed on them for a rental
- And 3 percent have been denied insurance coverage
Creditors were especially likely to issue rejections in March, April and May, when there was a high level of uncertainty about how the pandemic would affect debt repayment, says Howard Dvorkin, CPA and chairman of Debt.com.
“Traditional creditors, credit card companies and subprime lenders were scared out of their wits because they didn’t know if they were going to ever see their money ever again,” Dvorkin says.
Who’s gotten turned down? While 32 percent of millennials have been denied a financial product so far this year, only 22 percent of Gen Xers (ages 40 to 55) and just 11 percent of Baby Boomers (ages 56 to 74) have experienced this type of rejection.
Consumers with lower incomes were more likely to get rejected than higher-earning consumers. In fact, almost 1 in 3 (31 percent) of those with annual household incomes of less than $40,000 have gotten rejected for at least one financial product this year. In contrast, less than 1 in 5 (19 percent) of those with incomes between $40,000 and $80,000 and just 14 percent of those who make over $80,000 have gotten a no.
The pandemic has made lenders leerier of risk. For example, 0 percent APR balance transfer credit card offers are becoming scarce. And some rewards card issuers are wooing higher-income applicants by offering big sign-up bonuses for high spenders.
For example, the Capital One Venture Rewards Credit Card is offering a huge 100,000 bonus miles when you spend $20,000 on purchases in the first 12 months from account opening, or still earn 50,000 miles if you spend $3,000 on purchases in the first 3 months.
“It will eventually bounce back, but for now, it’s a risk-off environment that has card issuers looking for the most creditworthy applicants and many consumers in debt payoff mode,” Rossman says.
Does rejection hurt financially? It depends
Some consumers view getting rejected for credit as a big hit to their finances, while others have a wallet-half-full outlook.
Overall, almost half (47 percent) of those who got rejected for a financial product in 2020 said the experience negatively affected their finances. But about one in five (21 percent) said the rejection had a positive impact on their money situation.
The tendency to view a rejection negatively was linked to age and gender, the poll found. In fact, women (53 percent) were more likely than men (41 percent) to view a rejection as a detrimental financial event in their lives.
And more than half (52 percent) of rejected boomers reported unwelcome financial fallout from getting denied credit, compared with half of Gen Xers and less than half (46 percent) of rejected millennials.
The opposite was true of the positive effects. The poll shows 27 percent of rejected millennials, 15 percent of rejected Gen Xers and just 7 percent of rejected boomers reported that the denial had a good effect on their finances.
It’s possible that these consumers ended up happy to not have extra debt to pay down during a pandemic and recession. And there are several other reasons why an applicant might see a silver lining to getting turned down for credit, says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling. For example:
- The rejection may act as a wake-up call. A rejection can inspire a person who’s in financial trouble to balance their budget, get their debt under control and climb out of a financial mess, McClary says. “If someone is already drowning in debt, the last thing they need to do is take on more debt,” he says.
- They may end up finding a better deal. A consumer who applied for credit on the fly without fully weighing all their options may end up finding a different financial product with better terms, McClary says.
On the flip side, a rejection could cause an applicant to lose out on a house for sale in a competitive market or miss out on a good deal. And it could even push some consumers—if you need a car to get to work, for example—into the dicey world of subprime borrowing.
“A subprime loan could be the tipping point that leads to trouble,” McClary says.
5 ways to boost your credit and increase your odds
Want to increase your chances of getting credit or take steps after rejection to increase your odds for next time? One upside to getting turned down for credit: it can inspire you to make positive changes. In fact, the poll found almost 3 in 4 (73 percent) consumers rejected for a financial product this year have taken steps to make their credit better. Here are some tips:
1. Know the score
You can use AnnualCreditReport.com to get a free yearly report from each major credit bureau, but the report doesn’t include a credit score. Check out this list of lenders that offer you a look at your FICO score for free. Once you have your score, check your credit score range. A FICO score of 740 to 799 is considered very good while 800 to 850 is exceptional “Go in with your eyes wide-open knowing exactly what the lender is going to see on your credit report,” McClary says.
2. Correct any errors
Did you find errors on your credit report that may be dragging your credit down? The U.S. Federal Trade Commission offers a guide to disputing credit reporting errors and a sample dispute letter you can send to the major credit bureaus. “There may be items having an adverse impact on your score through no fault of your own,” McClary says.
3. Pay down your debts
Amounts owed make up 30 percent of your FICO score, so reducing your debt can have a big impact. How much can paying down your balances help you? You want to keep your credit utilization ratio, the percentage of available credit you’re using, well below 30 percent. A higher number can really hurt your score.
4. Find the right card for you
Use a free tool like CardMatch to match you to a card that fits your credit profile in less than a minute. Finding a suitable credit card based on your credit profile may help you avoid rejection. With CardMatch, you answer a few questions and OK a “soft credit check” that won’t cause any dings to your credit score. Then you get a list of preapproved and likely card offers, taking a lot of the guesswork out of applying for a card.
5. Contact the creditor
If you’re not sure what kind of credit is required, ask the landlord or lender. “Go straight to the source,” McClary says. It also helps to know if you have factors that would be red flags for creditors, such as spotty employment history or lots of recent applications that make you look like you’re “aggressively” seeking credit, Dvorkin says. If your chances are slim, you may need to look at other options, such as tapping a savings account, getting a co-signer like May did for her car or asking for a loan from a family member.
If you get turned down, take a close look at the rejection letter to figure out what you can do to improve your chances next time. “They’re required to tell you what factors led to their decision,” McClary says. “If it does involve your credit, step back, take a deep breath and go back to square one.”
Bankrate commissioned YouGov Plc to conduct the poll. All figures, unless otherwise stated, are from YouGov. Total sample size was 3,780 adults. Fieldwork was undertaken between Oct. 21-26, 2020. The survey was carried out online.