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When Kyle Khachadurian found out his application for a secured credit card had been denied, he felt crushed.
“In my head, I was doing everything right,” says the 23-year-old from Queens, New York. “I had a big chunk of savings. … I did everything the way you’re supposed to except for this.” But as it turned out, an old collections account he had all but forgotten about stopped him from getting the card he wanted.
Secured credit cards are generally easier to qualify for because issuers require the applicant to post a security deposit, often similar to the card's limit, to cover losses if the cardholder defaults. But some credit card companies won't approve you for a secured card if you have an undischarged bankruptcy, too much debt or not enough income.
If you're caught off guard by a denial, here’s how you can turn things around:
Find out what you can fix now
First, look at your application and make sure you filled it out correctly. If you were rejected because you made a mistake on the application, contact the issuer and ask for a reconsideration.
But if your damaged credit is holding you back from approval, focus on that. It can take two to five years to turn badly damaged credit into good credit, says Richard Rosso, a certified financial planner at Clarity Financial in Houston. For those contending with other traumatic events at the same time, such as a divorce, job loss or business failure, the process can be even more discouraging.
“It’s kind of like moving a small glacier,” Rosso says.
While your credit can't go from poor to excellent overnight, there are often steps you can take in the short term to improve your standing enough to qualify for a secured credit card.
Go to AnnualCreditReport.com to get free credit reports from each of the three major consumer credit bureaus — you’re entitled to one free copy from each bureau every 12 months — and look for negative information. If any information in the reports is inaccurate, dispute each error separately, and provide any documentation that supports your claims.
If the negative information is accurate — say, you have a large outstanding balance — figure out how to tackle it. Dealing with collectors can be tedious, but if you take steps toward paying off old accounts, lenders might recognize that you're serious about getting your finances on track, and you may have a better chance qualifying for credit.
Show lenders that you can pay on time
If you have credit reports or other records that prove you can pay punctually, Rosso notes, it could help you gain access to credit. “Make sure you’re reporting your good habits,” he says. Here’s how:
Get your payments on record. Talk to your landlord about the possibility of using an app, such as RentTrack, that reports your rent payments to the major credit bureaus. Depending on where you live, you may also be able to persuade your utility companies to report your on-time payments to the bureaus.
Consider PRBC. Rosso tells his clients who are rebuilding their low credit scores to sign up for the alternative credit scoring site PRBC, which stands for Pay Rent, Build Credit. From information you provide about your bank account, the timeliness of your utility and rent payments and other factors, PRBC will produce a score for you between 300 and 800, the higher the better.
Many lenders don’t know about this alternative score, Rosso adds, so it might be up to you to explain what it means. In his experience, he’s never seen someone use a PRBC score to get a mortgage. But some have used it successfully for auto loans or cellphone providers, he adds.
Get a loan. Some banks and most credit unions often offer "share-secured loans" to consumers with poor credit. With these loans, you borrow against your own savings or certificate of deposit and make payments over the course of a few years. You may also be able to get a "credit builder loan," in which a loan is approved but the money is deposited in a CD and released to you only once you've paid in full. Banks and credit unions report these payments to the credit bureaus, and it nudges up your score. If you can afford the deposit or payments, these could be worth a try.
“It takes time,” Rosso says of those rebuilding their credit. “But soon, the world of credit opens up to them, and everything’s back to normal."
» MORE: Credit cards for bad credit
After two rejections — one from an unsecured credit card and one from a secured card — Khachadurian didn’t want another hard pull on his credit that might end in a denial. So before reapplying, he started paying off his collections accounts from when he was 19, and his credit increased slightly.
It was worth the trouble. After filling out the secured card application again, he was approved. Shortly afterward, he got a card with a limit of $300 and started using it to rebuild his credit. After just three weeks, he says, his credit scores shot up by about 100 points.
If you’re not sure you’ll qualify for a card, call the issuer's customer service department to ask about any minimum requirements it might have. Certain issuers may still be unwilling to work with you, but that's OK — look at offers from other banks who can help you, or consider alternatives to secured credit cards.
Getting rejected was discouraging, Khachadurian says, but he’s glad he put the time into rebuilding his credit.
“I can tell you, when I got approved, I was over the moon,” he says.