What are the Possible Reasons for Denial of a Credit Card Application?
by Arwind Sharma Finance AdvisorCredit cards are imperative for emergencies, big-ticket purchases and various pre-planned expenses. More disposable income and the changing economy have contributed to the rise in credit cards usage.
However, studies say, nearly 150 million consumers who are potentially eligible as borrowers are currently not ‘credit active’. The reason is that the addressable consumers still face rejections in card applications.
Such rejections can potentially shatter multiple dreams at once. Hence, one should know the possible reasons for denial to avoid the same and get approval for a credit card easily.
Poor credit score
Credit score is the very first thing every card issuer checks before accepting a credit card application. Credit bureaus like CIBIL study an applicant’s financial behaviour based mainly on his:
Repayment history
Credit mix
Credit servicing
A CIBIL score below 750 is considered low and depicts the borrower’s poor money management skill. So, it is advised to repair the credit report by fixing unpaid bills, debts, recent delinquencies, etc. and have a healthy score above 750.
More debts relative to income
An individual’s debt-to-income ratio also counts while applying for a credit card. This ratio measures his monthly obligations and income to assess his repayment capability. It is calculated by dividing total monthly liabilities by gross monthly income.
A DTI greater than 50% has a negative impact on the applicant’s finance. So, higher the DTI more is the chance of rejection.
Check credit history
An absence of credit history is equally an important reason that leads to denial of a credit card. Having no credit history signifies a borrower’s zero management skills in paying off the debts. The lender is likely to reject the application if a borrower doesn’t have at least one active account in the past 6 months.
Low income
Financial institutions evaluate a borrower’s repayment capability with his/her salary per month. Card issuers usually don’t publish the minimum income requirements. They examine the applicant’s job stability, salary slips and savings account history as important factors of the credit card eligibility.
Too many enquiries on credit report
Applying for multiple credit cards at the same time directly impacts the credit report. For each application, a borrower hurts his credit score as the lenders ask for hard enquiries.
Too many enquiries give an image of a credit hungry person and lenders tend to reject the application owing to financial insecurity of the candidate.
Error in the application form
Missing or incorrect information in the application form can lead to a direct denial. Moreover, failing to mention certain piece of information or omission of facts also grounds for a rejection. It is advised to apply online and review all information to avoid such errors.
Multiple balance transfers
Credit bureaus keep an eye on consumers who opt for balance transfer from one credit card to another. Taking advantage of this facility during emergencies is acceptable. However, those who practise this often and do multiple balance transfers seem to have high chances of rejection.
Find the right card
It is easier to get a user-specific card even if an applicant has a low credit score. Co-branded cards like the Bajaj Finserv RBL Bank SuperCard have tied-up with multiple vendors suiting people’s lifestyle. So, if a consumer is a frequent buyer, opting for a travel card is the best bet. Using a purpose-specific card, further, helps users improve their credit score and qualify for a better card in the future.
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Created on Dec 6th 2018 23:35. Viewed 2,698 times.