Even before the coronavirus arrived, about 15 in 100 people who applied for credit cards were rejected. In 2019, for instance, 14.4% of all credit card applications were declined.
Considering the economic impacts of the coronavirus, you can expect this number to go up. According to a recent article on CNBC, “banks are tightening lending standards across the board, thus shrinking available credit.”
Indeed, a quarter of credit cardholders, equivalent to just under 50 million people in the US, saw their credit limits slashed or their lines of credit closed altogether within the 30 days leading to May 15.
What You Can Do About the Situation
The two main reasons any credit card application would be rejected are a poor credit score and credit card application restrictions. The following are four ways to address these two problems;
- Consider a secured credit card
Lenders are wary of unsecured loans, especially during economic recessions, such as the one we’re witnessing. With people losing jobs and business closing all around, the risk of delinquency is very high. One way around this hurdle is to opt for secured credit cards where you deposit an amount equal to the credit line. It’s a great way to build your credit.
- Invest in credit-building tools
There are multiple tools that one can use to build their credit. Experian Boost, for example, is a program offered by credit bureau Experian that tracks how you pay your utility bills, cell phone, and other bills. If you can pay those bills on time, your credit rating will improve. Another alternative is Soft, which offers credit card builder loans.
- Keep your balances low
The second biggest factor in a person’s credit is their credit account balance. If your balances are high, you become a greater risk because it’s possible to be overwhelmed by the debt. Keeping revolving balances, such as credit cards and lines of credit, low can significantly boost your credit score. To be exact, try not to use up more than 30% of your credit.
- Start paying your balances on time
One of the worst mistakes you can ever make when it comes to loans is defaulting on your payments. It takes at least seven years to get those late payments off your credit report. So, don’t be late. If there’s a problem, discuss it with your lender and find common ground. But, don’t allow the late payment to appear in your credit history.
Aside from the above points, it would also help to have a relative or friend add you as an authorized user to a highly rated credit account. Above all, always spare time to go through your credit report and fix any errors.
AUTHOR BIO: Michael Hollis is a Detroit native who now lives in Los Angeles. He is an account executive who has helped hundreds of business owners with their alternative small business loan solutions. He’s experimented with various occupations: computer programming, dog-training, scientificating… But his favorite job is the one he’s now doing full time — providing business funding for hard working business owners across the country.