Why Do Credit Card Applications Get Rejected?

With the growth and expansion of the Indian financial market, the credit options available to the wider population have also reached new horizons. Applying for a credit card is very easy today. Parallel to banks, NBFCs also work in tandem to offer credit cards with numerous offers and benefits. They have made it possible for us to apply for a credit card from the comfort of our homes. A number of pre-approved card options are also available to customers nowadays. However, this does not necessitate that you will get a credit card without any difficulty. Pre-approved or not, lenders have a specific set of approval criteria that you must fulfill before they issue a credit card. These factors decide whether your credit card application will be accepted or rejected.  

Putting the Red in Credit!

It can be demoralizing to see your application get denied, but don’t take it personally. Instead, try to understand what the reasons for this rejection are. This can help you decide the best course of action for your finances so that your card application is approved without any hassle the next time.  

1. A sore score?  

Anyone can take a credit card, but many financiers have stricter credit score standards than others. For example, credit cards with a high credit facility or lucrative rewards schemes are only available to high-score customers. Usually, one needs a high credit score of 750 or above to get approved for certain credit cards.  

Your credit score, also known as CIBIL score, is hampered due to –  

• Defaulting on loan repayments  
• Not paying EMIs on time  
• Applying for multiple credit cards  
• Pending loans with several lenders 

2. New in town! 

If you are just starting your credit journey, getting your first card can prove to be a challenging affair. It’s a problematic cycle, as you can’t use credit and build up a score without getting approved for credit in the first place. It doesn’t mean that banks don’t consider you trustworthy just because you have a limited credit history; instead, it just means that the card issuer is uncertain since they have limited information on you and don’t know how you handle credit. 

3. Paltry paychecks?  

Although card issuers do not reveal how much your minimum income needs to be for a credit card, it plays a role in the approval. If you only have part-time employment or are a college student, banks think that it could be for you to repay the credit you accumulate on a card. It is important to understand what counts as your total income for a credit card application. Remember to submit all your income documents like, salary slips, Form 16, ITR details, etc. when you apply. 

4. Too late!  

How you tackle your payments is one of the most important factors affecting your credit score. So, if you miss out on even one payment due date over 30 days, it could prove difficult to get approval for some credit cards. Unfortunately, there is no way to clear this late payment history. But you can still be eligible for some secured credit cards. Use them wisely and be sure to clear your dues on time to improve your credit score. 

5. Owe or woe?  

How much you owe will affect your future payments and, with it, your credit score. Yes, it’s a vicious cycle. Higher the debt, the harder it becomes to keep up with your day-to-day payments. When the amount of your debt is higher than your annual income, your chances of obtaining a new credit card plummet. Issuers highly value timely debt clearance and if you have high balances on your credit card or have stored up debt payments, first try to clear your dues before applying for a new card. 

6. Freeze!  

A formal credit report forms the basic paperwork for card issuers to determine if you are eligible to open a new credit account. Many customers freeze their credit reports to prevent identity theft or scamsters from using their information and opening fraudulent accounts. If you have frozen your credit reports and have forgotten to unfreeze them, your card application will be denied. Make them available for financiers before you submit a fresh application. 

7. Too many questions? 

Multiple hard inquiries on your credit report impact your credit score but by a moderate limit. Customers usually opt for hard enquiries when they are applying for any sort of loan. However, if card issuers see that you have made too many credit inquiries within a short period of time, it tells them that you are finding it difficult to manage your finances without taking debt. Although hard inquiries stay on your credit report for up to two years, it doesn’t affect your score for that long.  

The Road Ahead

Yes, it stings to see your credit card application get denied. However, this does not mean you’ll never be eligible for a new card. The rejection is not in your control, but what comes next? How you cope with this setback and take the correct financial steps before applying again is important. Here’s how to make sure that your next credit card application is a success –   

• Wait it out: It is futile to keep applying for a new credit card again and again, just to get luck-based approval. The more applications you send, the more chances it has of getting turned down again. The best course of action is to wait and find out why the card issuer rejected your application.
   
• Read the reply: The credit card company will respond to your application within 30 days. If you are rejected, you will receive an Adverse Action Letter from the issuer, outlining the clear reason or reasons behind this. Go over this letter carefully to understand the future steps you can take.
   
• Request a report: When a financial institution rejects your credit card application, it is based on information compiled from a credit report. Request a free copy of this credit report within 60 days and examine it carefully. You can then dispute any errors for which your application was wrongfully denied.
   
• Review your score: If a lender denies your credit card application, they usually provide you with your credit score to explain why they rejected your application. Use your credit score, along with the report and issuer’s notice, to get a detailed understanding of your credit standing. 

• Improve your credit: Once you have all the information at your disposal, chalk out a plan to repair your credit standing. Go through the areas of improvement based on your credit report, from clearing past dues to timely EMI payments.  

Winning the Credit War 

Getting approved for a credit card can sometimes be challenging. Depending on the type of card, banks and other card issuers have a long list of criteria you need to tick off. However, properly managing your finances, taking care of various repayments, and limiting your credit enquiries can improve your credit score.  

This shows financiers that you are creditworthy. Ensuring a healthy credit history and a stable income source will make getting a new credit card as simple as ABC! Based on your preferred benefits and rewards scheme, apply for a credit card today from Bajaj Markets and say goodbye to your financial difficulties!