Understanding Credit Card Declines: What It Means for Your Credit Score
Many people wonder how a declined transaction might impact their credit score. The short answer is generally, it won't. However, the underlying reason for the decline can have a significant impact. In this article, we delve into the nuances of credit card declines and their potential effects on your credit score.
Common Reasons for a Credit Card Decline
A steady stream of information has led many to fear that a declined payment will hurt their credit score. However, in most cases, just the decline itself will not affect your credit score. Instead, the issue lies in the reasons behind the decline.
Near or Over the Limit
Example:
Applying for a credit card can always hurt your score, no matter the result of the application. For instance, if your card is declined due to nearing or exceeding your credit limit, your credit score has likely already been affected. When a card is maxed out, it can lead to a negative effect on your credit score, even if a decline doesn't cause an immediate drop.
Out-of-Area Charge
Example:
A declined transaction due to an out-of-area charge typically will not harm your credit score. This type of issue is often a security measure and not a sign of financial mismanagement.
Fraud Report
Example:
If your card is declined because a fraudulent transaction is suspected, your credit score may not be directly impacted. However, your card company might put a security hold on the account until they can verify the activity with the cardholder. This situation is more about security than your credit score's health.
What Should You Do If Your Card Is Declined?
The first step when your card is declined is to call your credit card company. They can provide insights into why the decline occurred. As seen in a real-life example, a first-time decline at a new store could point to a stolen card, leading to a cleared block that allows the card to be used again.
Steps to Take
Stay calm and contact your credit card issuer. Be prepared to provide information about the purchase attempt, such as the date, store, and transaction amount. Follow your issuer's guidance, whether it involves clearing a block, confirming your identity, or checking for fraud.Factors Affecting Your Credit Score After a Decline
While a declined transaction alone typically does not affect your credit score, the resulting actions from the decline can. For instance, if a decline points to fraud, your credit score might not be affected, but the verified activity can be listed as a positive step in your credit history.
Conclusion: Understanding the Risks
Understanding the reasons behind a declined transaction is crucial. If the decline is due to excessive use, a suspected fraudulent activity, or any other underlying issue, act quickly to ensure your credit remains healthy. By staying informed and proactive, you can avoid potential damage to your credit score.