Credit Card Approval Standards On The Rise: Excellent Credit Scores Still Get Denied

Deny ButtonOne reader with a 805 credit score e-mailed me saying he recently got denied for the Barclays Arrival World MasterCard. As part of the FICO Open Score Access initiative, he got his credit score in the mail plus the nice rejection letter. The reason for the rejection was a high debt-to-income ratio.

The credit score is supposed to encapsulate everything from outstanding debt, number of credit lines open, and debt to income levels, yet here he is being denied a credit card with just a $3,000 monthly credit limit to start! If someone with a credit score that’s in the top 10% can’t get a credit card, what hope is there for the other 90%? Let’s find out more about his story.

The reader used to make about $200,000 a year for the past three years, but is currently unemployed and earns $40,000 a year from his various passive income streams + his $1,800 a month unemployment checks. He’s only got two other credit cards and always pays them off in full. The problem with his financial profile is that he has a $800,000 mortgage on a $40,000 income. With the industry standard of a mortgage amount no more than 5X your annual income at existing rates, it’s easy to see why a 20X ratio would cause concern.

But here’s the kicker. The reader also has $500,000 in cash, CDs, and liquid after-tax stock investments! Surely if you were the credit card company you’d be OK with approving a potential lifelong client even if he does have a high debt-to-income ratio of 20:1. What’s missing here is the calculation of debt-to-total-assets


Although it stinks the reader cannot get approved for a great credit card which provides double the points on everything for travel before he takes off for two months to South America, the stringency by credit cards today bode well for the future economy of America and potentially the world.

The reason why there was such a financial crisis in 2008-2009 was because of loose credit approval standards by banks and credit card companies. No doc stated income loans were commonplace. I remember doing two stated income mortgage refinances during my day for example. The worst were the negative amortization loans which grew your principal amount instead of lowering the principal amount with each mortgage payment in order for the debtor to save cash flow.

If banks and credit cards only gave out loans to people who could afford to pay their loans for the entire duration, then the financial meltdown would not occur. But of course finance isn’t this simple.

Since the financial crisis banks have been super stringent in allowing people to refinance. Their stringency was frustrating for many, including myself as it took over 100 days to refinance my last mortgage in the Spring of 2012. But with every new mortgage that makes it through the ringer, our financial system is that much safer from future meltdowns.

I argue that stringent credit card approval standards are even more important than stringent mortgage approval standards because credit cards are often used to buy non appreciating assets such as food, clothing, travel, toys, etc. If you combine an irresponsible spender with a credit card, bad things are guaranteed to happen.

Whereas if you combine an irresponsible buyer with a mortgage, there is a CHANCE the irresponsible buyer may get bailed out by appreciating home prices or by our omnipotent government with programs such as the HARP. Obviously it’s never good to buy more than you can afford. I’m just saying there’s a better chance for a home buyer.


The credit score only takes a snapshot of your financial history. If it so happen to take a snapshot of when your income is low for whatever reason, you’re going to have a much more difficult time getting credit. Therefore, the solution is to apply for credit when you don’t need credit to avoid such situations.

I recently applied for an unsecured $50,000 line of credit from Citibank because they asked me whether I’d be interested. I’m friends with my personal banker and asked her, “Will me applying for this line of credit help you?” She said yes, so I gave her the go ahead by signing the application document. The line of credit has a mediocre interest rate of 5%. I plan on NEVER using the line of credit, but it’s nice to know that I do have $50,000 at my disposal in case I have a credit crunch.

The way I keep razor thin amounts of cash in my bank accounts, I can see myself coming up short several thousands of dollars for property taxes for example. Now I can simply withdraw whatever I need from my line of credit and pay it off the next month. The cost is cheap because I’ll only pay 5% pro-rated.

The final takeaway from this post is that assets are hard to track compared to income. The government depends on income to tax, but so far has been pretty nice on not taxing wealth over $5 million when you die (estate tax). You can be worth millions of dollars and still receive Obamacare subsidies if your income is below ~$45,000 per individual or $95,000 for a family of four for example. At the same time, you can have a million dollars in stocks and potentially get rejected by a credit card company because your income is too low compared to your mortgage debt.

The more credit card rejections there are, the better it is for the economy long term. Most of us have too many credit cards anyway!


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Updated 2H2015

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. says

    This is interesting to me. Would you really recommend that banks start performing wide-scale debt to total asset analyses? I know it would definitely help a lot of people in a similar situation to the example you mentioned, but wouldn’t it also expose banks to lots of risk from folks with big asset bases but relatively minor cash flows?
    I don’t mind the tightening of credit standards as long as underwriting methodologies get smarter at the same time. Maybe that does involve a look at total assets and total assets relative to cash flow.

    • says

      I’m not sure what the roadblock would be why they can’t or shouldn’t if the credit score system can check everything and spit out a number. At least the bank will have a more informed decision, which will allow them to earn more money and those with assets but lower income can get credit.

      I would gladly extend a measily $3,000 credit limit credit card to someone with $500,000 in liquid assets and a $40,000 income even with $800,000 in mortgage debt. But banks are still trying to come out of their shells after being burnt so badly in 2009.

  2. says

    I am a Canadian with a very high credit score who owes $21 000 and has $130 000 in available credit.

    My application for a high reward Capital One MasterCard was denied because I make less than the $62 000 yearly family minimum that the premium credit cards require in Canada. I am single and grossed $51 000 in 2013. They sent my a lovely letter saying that my application would not show as an inquiry on my credit record because my application was denied on the basis of income and they did not access my credit information.

    I often feel discriminated against as my low income keeps me from taking advantage of the best credit card rewards but I make too much to benefit from the generous social rewards that are given to lower income people in Canada.

    My financial life is like shopping at the Bulk Barn. Too old to qualify for the student discount and too young to qualify for the senior’s discount.

    • says

      Hmmm, that is an interesting dilemma you are in Jane. Perhaps looking on the bright side, you’ve still got $109,000 in available credit to you which equates to 1.5X your annual income to spend?

      What is the income cut off for those generous social rewards in Canada btw?

      • says

        Most Canadians receive a child tax credit monthly that is based on income but my sons are over 18 so I don’t get that. My coworker with 3 children receives $112 per month.

        There is a HST credit that comes quarterly is to help reimburse lower income Canadians over age 19 for the sales taxes they paid. If I made $39 000 per year I would get $200 per year for that one with no children.

        I have a coworker who turned down full time and kept her part-time status to keep her family income under $35 000 per year because if she works more (unemployed husband and 1 child) she would lose too much in benefits. She also receives free dental care for her child and many other tax benefits because of her choice to stay in a lower income class. She receives a huge tax refund as well (they love to eat out) because people in low income categories with dependents have a lot more deductions than I do. She also receives $211 each month for that child tax credit. I know how much she makes and I used the tables provided by the province of Ontario to calculate her amounts.

        I work very hard. She works a lot less and she probably has the same or more net income plus the free child dental.

        And they were just accepted in to a not-for-profit housing co-op that I could not apply to live in because I make too much. She, hubby and kid will be paying $670 per month for a 3 bedroom townhouse with a garage, small fenced yard and patio!

        • says

          $112 a month in subsidy for 3 children doesn’t sound like a lot though. That wouldn’t be incentive enough for me to have tons of children if the figure comes out to $35 each a month.

          So I guess the other question is this: Are you willing to work less and make under $35,000 to receive more subsidies? There’s some huge outrage recently on Americans subsidizing other Americans’ healthcare who’ve quit their jobs to do something else more meaningful. If we all have the ability to earn less and receive subsidies, what’s stopping us?

          • says

            The coworker who receives just over $100 per month makes the same amount that I do, about $50 000 per year, but her husband is a skilled tradesman and makes much more than that.

            I am not prepared to work less to get more government cheques but I am prepared to be very annoyed when my coworker turns down shifts because she doesn’t have to work too hard to pay all of her bills.

  3. says

    Approvals are harder to get now for sure. I remember when my mom refinanced her mortgage they denied her application to get a heloc. After several weeks of going back and forth she was finally able to get one (she wanted one for emergencies) but the rate wasn’t very good.

    I’ve heard many stories of self employed people having to get jobs that give them W2s in order to get loans and such bc the banks wouldn’t approve them otherwise.

    • says

      I really hope your mom does NOT use the HELOC money for frivolous spending. It’s another one of those things that caused our housing market to crash. Just have her enjoy a debt free retirement!

  4. Edward says

    Hate to say it, but I wouldn’t give this guy a credit card either. No way in hell. An $800,000 mortgage?!! Really?! Must be nice to collect unemployment while living the “Lifestyles of the Rich and Famous” and getting a full income stream from elsewhere equal to that of the median American. And $500K in liquid cashy stuff? What the heck is going on here? If he has all this, what the heck does he need a $3K credit card for?

    If I wrote programs for the bank, my software would output something like:

    Financial Analysis: Crazy person
    Risk Level: Could just abandon debt, use new credit card to leave for Aruba, and never return
    Application: Denied

    • says

      He’s playing the credit cards points game and $3,000 credit limit is to start.

      Unemployment tax is paid for by the employer which in turn is derivatively paid for by the employee through a lower wage equal to that tax. There can’t be discrimination against collecting insurance. That’s like saying because you now have over $1 million dollars your car insurance no longer works after an accident.

      • Ravi says

        Lol, I like the car insurance analogy to disallowing SS for people with significant assets. It actually makes a lot of sense.

        Any thoughts on whether they should just increase the “deductible” for high earners, or people with lots of assets? Meaning, reduce the benefit based on some sort of means test?

        From an individual perspective, I’d be pissed if I paid all these thousands of dollars for years into SS and when I actually need it the govt (read: the rest of the population) decided I could do with less since I had been responsible and saved/invested.

        From a society perspective, it doesn’t really make sense to subsidize the life of someone who clearly does not need it. This is somewhat similar to Buffett paying mostly capital gains tax rates while his employees pay W-2 income tax rates. Is it fair? No, Buffett is a good investor and made his billions. But, since he has so much, is it really a prudent use of public funds to help someone who does not need it?

        I wish I had the answer… it’s a tough one.

  5. Ravi says

    Hasn’t happened to me yet, but I still have most of my income from W-2, so that’s the difference. I think the banks would have to think there is a large enough market that they are not underwriting properly (i.e. high assets but low income) in order to change their ways. Considering the savings rate is so low in the US, I doubt this is the case… but who knows it may be larger than we think. I bet some retirees are in this situation.

    To your question, a tax on income is easier than assets because income is liquid and assets may not be so liquid. Imagine if you had net assets of $1mm, but it was all in real estate. A 1% asset tax would mean you had to somehow come up with $10K to pay taxes. Ouch! It would also be a double tax (assuming they also taxed income) since you had to save after (income) tax to buy the asset, and then had to pay tax to basically hold the asset. Haha… that would be very savvy of the govt!

  6. says

    I think its good to see banks tightening up on credit card approvals. I’m not sure what your reader was thinking, applying for a new credit card while on unemployment. I’d hope that would be a huge red flag to anyone processing that application at the credit card company.

    I’m not sure debt to total assets is a much better way of looking at it. If I’m loaning you money, I don’t want to have to rely on you selling stock or having CD’s mature or whatever in order to pay me back. Liquid assets might be a better gauge, but I’d still only use it as a piece of the puzzle.

    • says

      Unemployment is not necessarily bad. I was unemployed for a good year after engineering my layoff and I still had all my assets and passive income streams.

      So my point again is: apply for credit when you don’t need credit, because when you do need credit chances are the banks will deny you.

  7. says

    Couldn’t disagree more :) Barclay card is notorious for being very stringent with their approvals. They are the ONLY issuer that’s like this though. There are lots of data points on flyer talk of people like this getting denied. It’s almost like they’re throwing darts to see who gets approved at Barclay’s.

    My credit score is always in the 750 range and I haven’t gotten denied with any of the other big banks. Everything from basic to platinum Cards(28 or so and counting). I still need to do the arrival card though so I’ll probably do it in a couple months :) #honeymoon2014

    • says

      Interesting, perhaps I should look at buying some Barclays bank stock as they are firing a lot of people as well.

      Are you saying you think credit standards are loosening drastically? Have you refinanced a house recently?

      • says

        I think shorting it might be the better idea. Credit card standards IMO have been about the same for the past few years, it’s the offers that have gotten better. As long as you build your credit with a few AU cards on your parent’s accounts, start with basic cards like Chase Freedom, Citi Preferred, etc. your credit score will slowly go up and then you can get the more exclusive cards like the Barclay’s card.

        If you go right for the top, then yea of course your chances are going to be less likely. Btw, picked SF for my bachelor party :)

  8. JayCeezy says

    Credit card companies are in business to make money, not hand out travel points to vagabond slackers. This credit card has a $3,000 limit, 0%APR for the first year. Why would it matter if this guy used to have a $200K/yr job? What if it was $1mm/yr? So what? His EDD is going away after 26 weeks anyway, but am I really reading that somehow being on Unemployment Insurance makes this guy BETTER QUALIFIED for the credit card?:-) He pays his other cards off each month, and would pay this one off, too, once the interest rate kicks in. Not sure why the credit card company should subsidize a guy who makes $40K/yr for travel, by issuing an unneeded credit line for a customer who won’t be profitable.

  9. says

    This is a sign of the tightened credit market. I think the ratio explanation is another way of rejection for the fact he is unemployed. I was turned down 30+ years ago because of a $35 write off that turned out to be wrong. Just prior to that, I was approved for an American Express card which has no credit limit. It is based on your spending and payments (in full). I think credit has always used whatever they wanted to justify a decision for a mortgage or credit card. In the past, a high FICO score was sufficient, but I guess that is no longer true.

  10. Austin says

    I assume your LOC has no annual fee. If you were in a pinch you could always obtain a secured LOC against CD’s or equities. You could use options to give shares a pricing floor for the bank, get a lower rate than an unsecured, avoid triggering any tax burden from a uneccesary liquidation and still pick up whatever interest or dividends were coming in.

  11. says

    Not credit cards, but a friend of mine can’t qualify for a car loan because he works for himself. Good thing he bought his house when he had a W-2 so the lender could understand him better!

  12. says

    We’ve been denied when churning cards, mostly because I think we’d been opening accounts so quickly. In the end, we’ve always been able to convince them to give us the card – but who knows how that will change going forward. I suppose that’s one of the downsides to FI: without a salaried income, it’ll be harder to get the rewards of credit cards.

    I personally think it’s logical to have more stringent requirements on credit cards. With a bank loan, if the pooh hits the fan at least the bank will be able to foreclose on and sell the home. With unsecured debt like a credit card, the financial institution doesn’t have a lot of recourse (depending on what you purchased).

    On a tangent, I wonder if some super savvy person has tried paying off his mortgage with a series of credit cards…

    • says

      Didn’t realize you were such a credit card churner! Korea had a huge credit card debt problem about 9 years ago or so that almost sunk the economy (random thought).

      The most credit I’ve applied for and gotten was $30,000 for my personal CC. I guess if it was at 0% I could use that to try and pay down the mortgage but alas, I don’t think banks allow.

      • says

        Maybe by utilizing Amazon Payments with a 0% card (paying the 3% to put the $30k in your significant other’s checking account) there may be a way. Heck, with a 1% cash back card, there’s an arbitrage opportunity. With mortgages at rates near 3%, it’s limited. But if mortgage rates rise and Amazon keeps their charge where it is, it may be worth looking into.

  13. says

    I got something similar recently. I guess you can’t really play the reward point games when you have a big debt load. All my debt are mortgage and business debt, though. They shouldn’t treat those the same as consumer debt. Oh well, whatever. They probably should look at the asset too. It’s crazy to turn down a good customer.

  14. says

    I was denied a home equity loan once and the reason was high debt utilization. I was in the situation of your example person – lots of assets on my balance sheet. Once I sent the lender a copy of my personal balance sheet showing assets many multiples of the credit line I was seeking, I received approval. The fact that I had a personal balance sheet may have been a sign that I wasn’t a complete financial doofus.

    As for credit cards, I’ve been declined many times, but also been approved many more. Usually the reasons they give for denial are vague and only remotely related to my actual financial life. They probably have a list of pretextual reasons for denial that the computer spits out without any human oversight. I’d be curious to hear from an industry insider if that’s how it really works.

  15. S says

    Speaking of refinancing. Would you recommend refinancing to a 5 year arm at 3% down from a 30 year at 4.25% There is a good chance we will move in 5 years, but not within next year. About 80% of interest savings in first year would basically cover the closing costs, so would have to stay for a year to break even, which I think is almost a certainty.

  16. JC says

    i didnt have a stellar credit rating, in fact I just went through a short sale on an INVESTMENT property. I still was current on my primary residence and every other bill including paying off credit cards on time in full every month for the last 10 years. But after my short sale showed up on my credit I got a letter from my credit card company informing me my credit limit of $25,000 was now $500!! That wouldnt even pay for 2 suits I need to buy for work. I understand the cut but down to $500 is absurd. I didnt lose my job, in fact I got a big promotion and raise. But in order to short sale the bank said i MUST stop making mortgage payments on the property…that combined with the shorts sale itself hit my score big time.

  17. S says

    Question for Sam or others who invest in rental property. Who do you use for lenders? Do you go for the best rate possible (if so, what is your preferred source)? Or do you prefer having an established relationship with a bank, and if so does that typically give you a good rate?

  18. says

    Full disclosure: I’m a Bank Manager and we offer credit cards.

    Lot’s of declines these days, particularly with Business clients. Not sure what it is, but some card companies have not revised their underwriting standards since 2009 during the credit crunch.

    Approvals rates for us are around 30% I’d say.

    • says

      Now THAT is some great inside information!

      30% seems pretty low to me, and if banks haven’t changed underwriting standards since 2009, no wonder why things are tough.

      But your data makes me BULLISH about our economy and our future.

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