As plastic money becomes more prevalent, applications for credit cards have also been steadily rising. Higher disposable incomes and changing economic trends have also been contributors to the rise in the use of credit cards. There are credit cards to suit every need, business cards to cash back ones, shopping to entertainment. And while banks might be lining up to offer customers credit cards, there could be times when your application for a new credit card might not be approved.
A bank or financial institution is usually more than happy to extend lines of credit to customers since this means they have another source of income courtesy the many charges associated with a credit card. Banks also earn through interest charges if the cardholder fails to pay off the whole amount due at the end of each billing cycle. In spite of this, most banks will exercise some caution before issuing a card to an applicant with a low income and a poor employment record as the bank cannot guarantee the cardholder will be able to pay off the debt accrued on the card.
To avoid this being a reason behind the bank’s rejection of a credit card application, it is advisable to check if you as an applicant meet the eligibility criteria set for a particular card. This is especially true since banks usually require the applicant to submit supporting documents such as salary slips, Form 16 as well as tax returns.
Having a poor credit score is the more common reason a credit card application is rejected. A credit score determines your creditworthiness to lenders, and also measures your ability and history of repayments. Having a poor or low credit score effectively indicates that you as an applicant are unable or inefficient at managing your money and assets. This in turn makes lenders wary of issuing credit to you, as there is a possibility of defaulting on the amount.
Credit scores are determined by credit bureaus such as Experian and CIBIL. Having a low CIBIL score would directly affect your chances of getting a credit card application approved.
Some of the main reasons a credit score could be low are mentioned below:
Not having a loan history or a credit history also negatively affects your chances of getting your application approved, as the bank has no previous history on which to measure your creditworthiness.
While this might seem very trivial, making a mistake in the credit card application form could result in the rejection of the application. AN incorrectly filled in application form or multiple errors in the form has resulted in applicants losing out on acquiring a credit card. Failure to mention certain details (omission of facts) are also grounds for rejection, as banks have access to your credit history as well as your previous financial records. To avoid your application being rejected due to such a reason, it is advisable to apply online and review all information as presented on the screen. In this way you will avoid forgetting to enter some information.
Applicants who already have multiple credit cards issued in their name could find it more difficult to get approval for a fresh credit card. This is because all lenders verify an applicant’s reliability by looking at the debt-to-income ratio. This ratio measures the outflow of income to card repayments made. If the outflow is very high, the lender could choose to deny the application since the applicant is already spending a large portion of his/her income on repaying existing credit card. This would in turn make it difficult for the applicant to pay off another credit card, inviting the possibility of a future payment default.
Choosing to transfer a credit balance from one card to another to avoid hefty interest fees also shows the applicant in poor light as it indicates poor judgement and an inability to maintain credit and payments.
The applicant’s occupation is another factor that could impact his/her credit application. Work history as well as choice of profession play a role in determining whether an application will be cleared or rejected. Having a job that does not have a steady source of income would work against the applicant. The place of work and organisation are also taken into account as the applicant’s repayment history is evaluated based on this. Working in reputed companies and showing a steady work history would significantly help ensure a credit card application is not rejected due to occupation.
Address verification is a compulsory part of the check a bank is obliged to do before issuing a credit card to an applicant. The address provided in the application form is verified routinely, and in case of multiple addresses being submitted, each of these addresses are verified. It is essential that the applicant provide accurate addresses and information on their place of work and residence to ensure the approval of an application. A discrepancy in the address details is grounds for automatic rejection of an application, and thus applicants should ensure their address and the proof submitted are adequate and accurate.
Applicants seeking to avoid having their credit card application declined can refer to the below points:
By keeping the above points in mind, applicants can avoid the pitfall of having their application rejected.