When most people get a credit card application in the mail, they think it’s automatically a done deal and they’re good for the credit. But that’s not the case.
Most credit card applications that say “pre-approved” on the envelope are really just coming to you off a mailing list. The lenders don’t know who you are or what your individual financial situation is like. They just know your name is on whatever list they’re working from.
What you should and shouldn’t do if your credit card application is denied
If you get turned down, here’s what you shouldn’t do: Apply for the next pre-approved credit card offer that comes in the mail. If you do that, it looks like a second hard inquiry on your credit in a very short period of time, which effectively signals that you’re struggling financially.
Hard inquiries like that are a kind of warning light on your financial engine that will drop your credit score by 10 points in a hurry, according to myFICO.com.
Here’s what you should do instead: Try a credit union. Sit down with a loan officer at a credit union and see what they say about you getting a credit card. The worst that can happen is you end up in a “fresh start” program where you have to put money on deposit before you’ll be granted a line of credit.
Just be certain it’s a credit union you go to, not a small local community bank. (You’ll know by the name.) While small local community banks can be the equal of credit unions in many respects, this is one time when they’re not. Small local community banks generally just piggyback off the existing credit card programs of the big banks and re-brand the cards. So if you were turned down for that pre-approved in the mail, chances are you’ll be denied at that small local bank too. That’s why you’ve got to go straight to a credit union.
Is your credit score getting in the way of your credit?
The key thing to know about having a low credit score is that time and a change of habits are the great healers. If you have delinquent debts on your credit report, they generally fall off after seven years. That’s a long route to an improved credit score. But the quickest way to dramatically raise a low credit score is to reduce the amount of available credit that you’re using in your life.
At first, you should aim to use 30% of your total available credit or less. That’s one of the key foundations of a healthy credit score. When that becomes a reality, then shoot for using 10% or less. That will really put you on the road to a great credit score. Conversely, using 50% or more of your total available credit is a recipe for credit score disaster.
Read more: Credit score guide
Beware of credit repair firms
In a recent Consumer Federation of America survey, more than half of all respondents thought credit repair firms were a legitimate way to improve a credit score. In reality, nothing could be further from the truth.
What these firms typically do—and this was very common last decade—is use a technique to temporarily raise your score by a significant number of points for just a few weeks before it plummets back down again. But the credit bureaus have gotten wise to this technique over the years.
Anyone who says they can magically eliminate bad items on your credit report is telling you a big lie. Keep your money in your own pocket and don’t give it to them for their supposed ‘services.’ Better yet, use it to pay the debts you owe and that will improve your credit score on its own!