When Madeline Otto tried to get a department store credit card, the 99-year-old woman was rejected — because she was too old, she was told. The Florida resident was reduced to tears by the slight, telling ABC News she was “embarrassed” to be considered uncreditworthy for a seemingly arbitrary reason.
Otto’s story does have a happy ending, complete with a plot twist: A computer error led to her rejection on the grounds that she was too young to apply for credit — the application program wasn’t set up to handle her actual birth year, so it assumed Otto was born this year, not in 1912. (It’s not legal for a lender to reject someone because they’re too old.)
But there are some equally peculiar reasons why a would-be borrower can be denied a credit card — only these are perfectly legal, and trip people up all the time. Here are five strange reasons why a lender can reject you:
You have no debt. Maxine Sweet, vice president of public education at Experian, says this often trips up Baby Boomers and older Americans. They pay off their mortgages and they stop using credit cards, which might make them fiscally prudent, but also makes them unscoreable using conventional credit formulas. “If you’re not demonstrating that you can manage debt or credit, they don’t have a basis to make their approval decision,” she says. Even keeping credit cards open might not be enough if you’re not using them regularly, she says, since some issuers won’t report to credit bureaus if an account has been inactive for a number of months.
You got a new job. In this economy, landing a job is cause for celebration, especially if you’ve been unemployed for a while. But a brand-new job could keep you from getting brand-new credit. “When lenders are looking at application information, they look to see what’s been their experience with borrowers having these particular attributes,” says Paperno. Especially in regions hard-hit by the recession and its aftermath, applicants with shorter employment histories might have higher rates of default. While this criteria is lender-specific, as opposed to being part of your credit score, “It is a factor that stands out and maybe there aren’t enough counterbalancing factors,” Paperno says, especially if unemployment left you with blemished credit, as well.
You’re a stay-at-home parent. In an unintended consequence of the financial reform legislation, stay-at-home parents (or just stay-at-home spouses, for that matter), can’t get a credit card in their own name. Changes to the law intended to keep credit card issuers from doling out unreasonable amounts of credit have an underbelly that some consumer advocates claim puts victims of domestic violence at risk. Previously, issuers could extend credit based on household income. Now, that’s been changed so that lenders are required to look at individual income — and if you don’t earn any income of your own, you’re out of luck.
You just got a new credit card. Just because one lender recently deemed you creditworthy doesn’t mean that a second one will. In fact, the opposite is often true. Too many recently-opened accounts — even as few as one — can torpedo your chances of getting another card in the near future. “Having recently opened accounts does tend to be a risk factor” for negative activities like missed payments or default, says Barry Paperno, community director at Credit.com.
You have too much available credit. It sounds counterintuitive: Everybody knows you won’t be able to get new credit if you already have a bunch of maxed-out cards, but having too much credit can also be a red flag. Sweet says lots of credit and very low utilization generally isn’t a problem. What can trip you up is if you have a lot of debt, even if you also have plenty of unused credit. In this case, Sweet says, a lender is likelier to turn you down, especially if you’re already at the outer limit of what you can afford to pay back. “Lenders are now required to look at your ability to pay,” she says. The credit you already have — whether you’ve used it or not — counts in their calculations.