In this article:
- Reasons a Credit Card May Be Declined
- What Happens to Your Credit When a Transaction Is Declined?
- What to Do if Your Credit Card Is Declined
Having your credit card declined by a merchant won't hurt your credit score, but it could suggest other credit issues or identity theft. It could also mean that your card is expired or that you were out of state or out of the country and didn't notify the card issuer of your travel plans, or the terminal is incompatible. It does not necessarily mean that your credit isn't good.
Then again, it could indicate a missed payment or charges over your card limit.
Reasons a Credit Card May Be Declined
Common credit-related reasons your credit card could be declined include:
- You've reached your credit limit. That means you are using all or nearly all of the credit available on that card. The portion of your credit limit that you use, called the credit utilization rate, has a major influence on your credit scores, and maxing out a card can hurt your credit score.
- You are behind on payments. Nobody's perfect; if a missed payment happens due to oversight, you may be able to call your card issuer and arrange to catch up.
- Your credit card was closed without your knowledge. The card might have been closed because your credit score dropped significantly and the card issuer decided you were too high a risk. Or, it could be a mistake.
Addressing these problems can also help improve your credit standing. If you have reached your credit limit and it is relatively low (typical of some retail cards), you may be able to pay down the balance so that your credit utilization rate decreases. Most credit experts recommend credit card utilization of no higher than 30%, and lower is better.
Late payments can be reported to the credit bureaus (Experian, TransUnion and Equifax) once you are at least 30 days late. Catching up on payments and ensuring that you stay on top of credit card bills can, over time, help you improve your credit score.
If your credit card is declined, you can call the number on the back of your card to ask why. If the account was closed, the issuer does not have to tell you why.
Reasons your credit card could be declined even though your credit is in good shape include:
- Your card is expired (or new, but you haven't activated it yet). The solution is simple, but if you are standing at a register, here's a good reason to carry a spare card. You can also step out of line and call to activate that card, assuming you are calling from the phone listed on your application.
- You have a large pending transaction. If you recently used your card to make a hotel reservation or rent a car, there may be a hold on much of your credit limit, and that could result in your credit card being declined.
- A criminal has used your credit card number. In this case, your credit score may have dropped, but not because you are less creditworthy.
What Happens to Your Credit When a Transaction Is Declined?
Having a credit card transaction declined does not affect your credit.
It can be embarrassing, especially if you don't have another way to pay. But the declination won't be reflected in your credit score.
What to Do if Your Credit Card Is Declined
The first thing to do, assuming you need to complete the transaction, is to use a different credit card if that is an option, or pay in cash.
If your credit card is declined, you can call the number on the back of your card to find out why.
- If the account has fraudulent charges, you'll want to get those resolved, likely with a new credit card and a new number.
- If the account was closed, you still owe the balance, but you'll want to take the card out of your wallet so it doesn't get declined again.
- If it was declined because of a hold placed on the card, it should work once the hold is gone.
- If the credit card was declined because you missed a payment, catching up will likely solve the problem.
- If the card was declined because you were too close to your credit limit, paying it down should help.
The Bottom Line
Having a credit card declined can be embarrassing and inconvenient, but it won't affect your credit score. However, some issues that could cause a credit card to be declined, like late payments and high balances, do affect your credit.
You can reduce the chances that you'll encounter this by:
- Paying balances on time.
- Making sure credit card balances stay well below your credit limits. (Signing up for alerts can help.)
- Being aware of credit card holds.
- Keeping an eye on your credit reports and scores.
Experian's free credit report can help keep you up to date on credit activity, as well as offer an early warning of potential fraud.
As an expert in personal finance and credit management, I bring a wealth of knowledge and experience in understanding the intricacies of credit card usage, credit scores, and the factors influencing financial well-being. My expertise is grounded in comprehensive research, industry insights, and a genuine passion for empowering individuals with sound financial advice.
Let's delve into the concepts covered in the provided article:
Reasons a Credit Card May Be Declined:
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Credit Limit Reached: Maxing out your credit card can negatively impact your credit score, as it increases your credit utilization rate. Keeping this rate below 30% is generally recommended.
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Late Payments: Missed payments, once reported to credit bureaus after 30 days, can harm your credit score. Timely payments are crucial for maintaining a positive credit history.
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Account Closure: Your credit card may be closed due to a significant drop in your credit score, making you appear as a higher risk to the card issuer. Addressing credit issues can help improve your standing.
What Happens to Your Credit When a Transaction Is Declined:
- Having a credit card transaction declined does not impact your credit score. The embarrassment of a declined transaction is temporary and doesn't leave a lasting mark on your financial history.
What to Do if Your Credit Card Is Declined:
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Alternative Payment Methods: If your credit card is declined, use another card or pay in cash to complete the transaction.
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Contact Card Issuer: Call the number on the back of your card to understand the reason for the decline. If the account has fraudulent charges, address them promptly with the issuer.
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Fraudulent Activity: If your card was declined due to fraud, resolve the issue with a new card and number.
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Missed Payments or Credit Limit Issues: Catch up on payments or reduce your credit card balance to resolve these issues.
The Bottom Line:
- While a declined credit card may be inconvenient, it doesn't impact your credit score. However, underlying issues like late payments and high balances can have a lasting effect. To avoid such situations, practice responsible financial habits such as paying balances on time, staying below credit limits, being aware of credit card holds, and regularly monitoring your credit reports for any suspicious activity.
In conclusion, my in-depth understanding of credit-related matters allows me to provide valuable insights into the reasons behind credit card declines and the subsequent steps individuals can take to manage their financial well-being effectively.
