What impacts your credit score?

We all know credit scores exist, we all have one, but only very few of us have ever researched our own – let alone know what it means. 

If you’re looking to apply for a new credit card, it can be worth your while to understand more about how it can impact the outcome of your application.

What is my credit score?

Your credit score is a number calculated by the credit reporting bodies in Australia. Not every agency does it the exact same way, though. 

Your score is usually a number out of 1,200 or out of 1000. The closer your score gets to their highest value, the better. 

To calculate your score, they consider various factors, such as:

• The types of credit and loans you hold

• Whether you pay your bills on time

• Any debts you may have

• The extend of your credit report/credit history (which holds all information on your past loan and bill payments)

Together with information provided in your credit report, creditors use your credit score to determine the outcome and rates of any credit or loan application you decide to file in the future.

How do credit cards affect my credit score?

That depends on the amount of credit you have. A lot of credit may potentially reduce your credit score temporarily until you can offset it with good repayment behaviour (i.e. paying your bills on time).  Reducing your credit limit may help improve your score, too. But of course, there are various factors responsible for your credit score beyond your credit card.

Applying for multiple credit cards within a short period of time can also leave a dent in your score.  That’s because every credit enquiry is noted on your credit report and stays there for five years. So some creditors may consider this a red flag. 

However, so long as you pay your balance off on time, you have nothing to worry about.

Does your credit card being declined affect your credit score?

No, if your credit card is declined while trying to make a purchase it doesn’t affect your credit score. 

Purchases are not typically noted on your credit report unless you continue to fail to make your repayments. That’s really the only thing that counts.

Why is my credit card application unsuccessful?

There are a few reasons a creditor may decide to reject your credit card application – and not all of them have to do with bad credit. 

Sometimes, it’s the little things that can turn into stumbling blocks. For example:

• Typos in your application: Incorrect information makes it impossible for the creditor to verify your application – so make sure to get the numbers right.

• You moved house: If you haven’t updated your new address across all networks, it also makes it difficult to verify your details.

• Minimum income requirements: Some credit cards require you to earn a minimum income. If you don’t meet the criteria, your application will likely be rejected. But don’t worry, there usually are low-income alternatives.

• Residency/citizenship requirements: Some cards are only available to permanent residents or citizens, however, there are cards available for temp residents with certain visas.

• Employment status: Steady job, ongoing employment, show you can handle repayments.

• Expenses outweigh income: When you apply for a credit card, you will be asked to provide an estimate of your regular expenses. If those take up a large portion of your income or more, you may be considered too much of a financial risk.

If none of these apply, your credit score could be at fault. Most credit card providers only approve applications with a good to excellent score.

So it’s worth checking your history before filing your next application. Common credit-related reasons for rejection are:

• Late payments

• Defaults & Bankruptcies

• Too many credit applications

• Insufficient credit history 

How much will my credit score go up with a new credit card?

Getting a new credit card won’t help you improve your credit score right away. It may even slump slightly initially, depending on the credit limit. 

What helps up your score, though, is paying your credit card bills on time.

What happens if your credit card application is denied?

First of all, every credit enquiry you make is recorded in your credit report for up to five years. If an application is denied, creditors can view this information, which may impact future applications.  So you might want to hold your horses before applying for the next one and figure out where it might have gone wrong. 

You can try asking the provider for information on your rejection, but unfortunately, they’re not obligated to tell you why. If they do, use the information to your advantage.

Once you’re ready to try again:

• If you haven’t already, check your credit to ensure you’re in good standing.

• Make sure your credit card of choice is the right fit for your circumstances.

• Ensure your application meets the credit criteria prior to submission and all information is correct.

• Apply for a low-fee/low-interest card with a lower credit limit – these provide a lower financial risk to the lender. From there, you can start getting your credit score back into the good books.

How long does a declined loan stay on your credit file?

All enquiries and applications stay on your credit history for five years. After that, they’re removed. Before that time, only wrongful information may be removed from your report.

How can I build my credit if I get denied?

If you’re just getting started on your credit card journey and your application got denied, make sure you meet the eligibility criteria for the card you selected. It can also be helpful to select a lower credit limit to start with and build up good behaviors from there.

If poor credit is at fault, check if there’s any way to improve your repayment habits. Do you have any loans or debt? Make a plan for paying it off. 

If you have debt with multiple lenders, consider consolidating it with a balance transfer to make it easier to stay on top. Creating a budget can help split up your monthly payments into manageable amounts.

Is it good to apply for a lot of credit cards?

Many credit cards don’t equal good credit. The opposite is the case. If you hold a lot of credit, your credit card score can slump.  The only way to maintain good credit standing is to continue to meet your repayments.

And remember: Applying for several credit cards around the same time can raise red flags with creditors and increase your chances of being rejected. When it comes to your current and future finances, a lot depends on your credit score. So if you’re looking to apply for a new credit card, make sure you meet the eligibility criteria. Our experts can help you find the right one within a matter of clicks.

This guide is opinion only and should not be taken as medical or financial advice. Check with a financial professional before making any decisions.