Are you wondering what exactly went wrong with your credit card application and what your next steps should be? Read on for some revelations.
Rejection of any kind is never a pleasant feeling, but a rejection over a credit product can take a toll on our finances as well. Many of us look at credit cards as a way of handling finances that our salary alone cannot cover. The fact that cards today offer innumerable benefits and rewards make it all the more enticing to apply for one.
That being said, did you just have your credit card application rejected? Are you wondering what exactly went wrong and what your next steps should be? Read on for some revelations.
Why Do Credit Card Applications Get Rejected?
There are many reasons why your credit card application could have been rejected. It could be a simple mistake in the application form or something bigger such as your income, credit score, employment type, and so on. Here are some common reasons why your application might have gotten rejected:
1. Unstable Work History
While most people are primarily concerned about their credit report and their credit score being above the 750-mark, there are other factors that need equal attention such as your work history. Your employment track record does play an important role for banks to give you a credit card. This factor demonstrates a consistent flow of income and your capability of handling monthly repayments.
If banks or credit card companies see that your work history is unstable and that you do not stick around at a job for more than a certain period, the chances of getting a credit card decreases.
2. Low Income
When you are in your mid-20s and have just started working, your income may not be very high unless you’re a professional. Even though most lenders do not advertise a minimum income criterion to apply for their credit cards, they will nevertheless consider your income as a deciding factor. If your income is too little to support foreseeable credit card bills, then your application may be rejected. Also, different card variants have different minimum income requirements – so, if you have applied for a premium card when your salary doesn’t meet the eligibility requirement, your application is likely to get rejected. However, that doesn’t mean you won’t be considered for a card variant whose income requirement matches your salary.
Watch: How To Withdraw PF Online
3. Multiple Applications for Credit Cards
Credit bureaus keep track of all your credit data. Every time you apply for a credit product, it results in what is known as a ‘hard inquiry’ and it gets recorded on your credit report that banks will request for when processing your application.
Multiple applications with various lenders will make you seem ‘credit hungry’ or desperate for credit. Lenders might perceive you as an applicant unable to handle finances without credit/debt, and that you might end up spending more than you can pay off. This means you’re a ‘risk’ to the lender, therefore, increasing the possibility of rejection.
4. No Credit History
If you have lived your life up until now without any debts whatsoever, it is good for you. However, it can be bad for your credit card application.
No credit history for banks means that they have no way of evaluating your creditworthiness. They cannot judge how you handle credit and whether you will be a responsible borrower. If they consider this unknown parameter as a risk for them to take, it could lead to your application being rejected.
What You Can Do
What you need to understand here is that one application being rejected doesn’t mean that all future applications will bear the same result. You could consider taking the following steps:
# Check the Adverse Action Letter – After your credit card is rejected, the bank might send you an Adverse Action Letter which states the reasons behind the rejection of your application. For instance, if the reasons involve your credit score, request a free copy of your credit report and cross-check the information to see how you can improve your score before reapplying. Usual tips include repaying all your debts in full in time, never missing a repayment in the future, and correcting errors in your credit report (if any).
# Re-apply after taking remedying measures – Once you are aware of the reasons for your application rejection, work towards remedying them and then re-apply for a credit card.
# Apply for a secured credit card – If your application has been rejected for reasons such as your employment or income, you could always consider applying for a secured card. A secured credit card is given against a fixed deposit which you have to maintain with the bank. This will reduce the risk you pose to the lender who will issue you a card with a credit limit against the deposit amount. Good credit behaviour on your part can make the lender convert your card to an unsecured one in the future.
# Apply for a plain vanilla card – You can choose a basic credit card whose eligibility criteria you can meet without difficulty. Use this card for a while and improve your credit history through timely repayments. This will allow you to upgrade to a better card later.
India has about 45 million active credit cards according to the Reserve Bank of India. So, getting a credit card application approved is not a herculean task, even if you have been rejected for one in the past. Lenders do not turn away business without cause. So, if you have been rejected recently for a card, you just need to be a little more cautious when re-applying, keeping these pointers in mind.
(The author is CEO, BankBazaar.com)