Some avoid applying for credit even when they could get better terms
Personal Finance Writer
Writes regularly about personal finance and health
Nobody likes rejection. But some consumers are so afraid they
will be turned down when applying for a credit card that they could be losing
money in the long run.
and financial illiteracy often go hand in hand,” says Thomas Faupl, a San Francisco-based
financial therapist. Fears and anxiety can keep people paralyzed when it comes
to their finances.
According to the Federal
on the Economic Well-Being of U.S. Households in 2016, 11 percent of
respondents who did not seek credit actually desired additional credit. Of that
group, 60 percent did not apply because they were afraid they would be turned
Some of those fears may be well-founded, particularly for those
with lower credit scores. In October 2017, the Federal Reserve Bank of New
York’s Survey of Consumer Expectations (SCE) Credit Access Survey found the proportion
of respondents who applied for credit and were
rejected was 8 percent. However, the proportion of respondents with credit
scores less than 680 who were rejected was more than three times higher at 26
Once rejected, the sting can outweigh the lure of what new
credit can bring.
“I’m afraid to apply for credit,” admits Ulysis Cababan,
a content strategist for Las Vegas-based immigration company RapidVisa. Cababan
was rejected for a credit card two years ago and doesn’t want to repeat the
experience, so he simply uses cash.
“For now it’s not part of my plan to re-apply for a credit card,”
How a fear of rejection can hurt you
A fear of applying for credit
can cost you money.
If you carry a balance on an existing high-APR card or loan, you
may be able to shop around for a credit card or personal loan with a better
rate, says Lisa Piercefield, regional operations manager for credit counseling
agency Apprisen in Indianapolis. A card or loan with a lower interest rate would allow you to spend less money in interest and pay off your debt faster.
fear of credit rejection also can stop you from receiving rewards that can make
your life easier – and less expensive.
For example, if you have a solid credit
score and travel a lot, a travel rewards credit card can save you money on
flights. If you have a small business, a business rewards card can save you
money on office supplies.
“You want to be happy with the card that you have and
make sure that it’s working for you the best that it can,” Piercefield says.
some people, the thought of being denied credit triggers shame about how
they have managed their finances in the past. Sometimes people get anxious
around applying for credit because they know their credit score is not where
it’s supposed to be, Faupl says.
Other times, people don’t understand how to
improve their credit so they simply avoid dealing with it entirely because they
are afraid to ask for help.
doesn’t happen overnight and, more importantly, it can be obtained regardless of
how low your credit score is now.
avoidance of credit can make matters worse. If you have a thin credit file, your credit score will remain stagnant and you may find yourself even more likely to get
rejected the next time your credit is pulled when you want to lease an
apartment or get the best cellphone deal.
Getting over the fear
way to rebuild confidence, which can help you to overcome the fear of
rejection, is by taking a credit management class from a nonprofit credit
counseling agency or your local credit union.
Having little or no understanding
about finances can leave you anxious, says Faupl. “Education can help with anxiety.”
way to get past the fear is to take baby steps. “Maybe you go online first and
do some research on credit reports,” Faupl suggests.
Then you might check your
own credit reports and credit scores to see what financial behaviors are
hurting your score the most. You can check your VantageScore and get a free
TransUnion credit report at CreditCards.com.
For a free FICO score, go to Discover Scorecard or check your card issuer, as many issuers offer free credit scores.
you need professional help with your credit, you might not feel comfortable talking to a credit
counselor about your credit face to face. “Instead of making an in-person
appointment, maybe you call on the phone because that feels safer to you,” Faupl
you’re ready to take the leap and apply for credit again, look to a credit
union, or places where you currently have banking relationships, Piercefield suggests.
A lot of credit unions and community banks offer second-chance programs or credit-builder programs that let you qualify for credit with a lower credit score.
If after taking those steps you’re
still afraid to apply for credit and you feel crippled by your fear, a
financial therapist may be able to help you get to the root of your anxiety.
Of course, you should also take
steps to improve your finances so you are less likely to be rejected again. If
you’ve been rejected for credit:
Understand why it happened
Under the Fair Credit Reporting Act, consumers have the right
to know what information in their credit file led to the rejection of the credit application. If you’ve
been turned down for credit, you’re entitled to a free credit report, and the
company that denied you credit must tell you where they obtained your credit
information and provide you the contact information so you can get a copy of
Let some time go by
Some consumers make the mistake of reapplying for credit
again and again after they’ve been rejected with the hope of getting an
approval. However, multiple credit inquiries can ding your credit.
“If your score is already below average, you
are driving that score down,” Piercefield says. Instead, look at why you were denied credit, and work to improve that. For example, if you have late payments, pay on time for 12
consecutive months before re-applying, Piercefield suggests.
If you have too
much debt in relation to income, start paying down that debt. If your credit report has a black mark such as a bankruptcy, you may want to wait to seek credit until that item falls off your
credit report or at least wait until your credit score starts to recover.
your credit score is 670 or below, work to get the score up before applying for credit or
apply for credit that is easier to get such as a secured credit card, which
lets you put your own money up for collateral, Piercefield says.
Other times, it’s a lack of credit history that prevents someone
from having a good credit score, says Armand Goytia, a certified consumer credit
counselor for Guidewell Financial Solutions in Catonsville, Maryland. In this
case, establish credit by applying for a secured credit card or a retail credit
card. Retail cards generally come with lower credit limits, higher APRs and are easier to
get approved for.
important thing is to recognize that the journey from credit rejection to financial
success is one that happens one step at a time.
“The best advice I can offer to anyone who is
looking to regain their credit confidence is to have patience. Good credit
doesn’t happen overnight and, more importantly, can be obtained regardless of
how low your score is right now,” says Goytia.
See related: 15 questions that will help you find the right credit counselor, 6 fears that keep people from seeking financial advice
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