4 Reasons You Can't Get a Credit Card -- Even With Perfect Credit

You've probably heard that great credit opens the door to great credit cards. There's a lot of truth in that, but it's a bit of an oversimplification. Great credit lets lenders know that you've done a good job of managing borrowed money in the past. That's not the only important factor, though.

Credit card companies want to be relatively confident that they'll get their money back. Since credit cards are unsecured debt, if you fail to pay, the company is on the hook for what you owe. So if a creditor sees any of the following four red flags, it might be reluctant to work with you, regardless of your credit score.

1. Limited credit history

Longer credit histories provide a more accurate look at how you've managed borrowed money over time. This gives lenders more confidence that the credit score is an accurate reflection of your creditworthiness.

When you're talking about someone with a limited credit history, that's not always the case. Consider someone whose only credit card is a cash back card from their favorite retailer. They've only had the card a few months and made one or two small purchases, which they paid back on time. 

It's a good start. But paying back a few purchases of less than $100 each isn't quite the same as having thousands of dollars at your disposal. Lenders may want to see more experience managing credit before they approve someone like this for a card.

2. Employment status

Credit card issuers usually ask about your employment status and annual income. They want to know if you'll have a regular source of income to pay back the funds you borrow. If you don't have any consistent income sources, you may have a tougher time finding a credit card company willing to work with you.

Note that this may not always be an issue for retirees. They may be able to report income from Social Security or retirement account withdrawals in lieu of income from a current job. Also, keep in mind that when asked to report income, you can report the income of a partner if you believe you'd reasonably have access to their income if you need it.

3. High debt-to-income ratio

Credit card companies can be leery of applicants who report high debt-to-income ratios. This is the ratio between how much you earn per month and how much you spend on debt payments. For example, if you make $5,000 per month and spend $1,000 on debt repayment, your debt-to-income ratio would be 20%.

Ideally, you want your debt-to-income ratio under 43%. A higher ratio indicates that you may be struggling to keep up with your obligations. This can happen to people of all financial backgrounds, even those with good credit scores.

4. Too many recent inquiries

Every time you apply for a new credit card, the lender does a hard inquiry on your credit report. This drops your credit score by a few points. Other lenders can see these inquiries when they check your credit while reviewing your application. 

If a lender sees several inquiries by credit card companies in the last couple of months, it may get concerned that you're trying to live beyond your means. Rather than take on this risk, it may just choose to deny the application.

What you can do if your credit card application is denied

Having your credit card application denied is disappointing. The first step to moving on is to figure out why your application was canceled. Your denial notice may give you some indication or you can contact the issuer directly to ask. This should give you some idea of where to focus your efforts going forward.

To minimize the likelihood of denials in the future, keep the above red flags in mind and try to minimize them as much as possible. Wait until you have a steady income to apply and don't apply for a new card more than once every six months. Try to keep your debt to a manageable level and, if nothing else works, just wait until you build up a longer credit history.