6 Reasons Why Your Credit Card Application May Get Declined
Credit card application rejection can be disheartening and there can be various reasons behind it. Understanding these reasons is crucial so that you can make the right credit choices to ensure guaranteed approval the next time you apply.
Here are six factors that may have led an issuer to reject your application.
Errors in Credit Card Application
Applying for credit cards requires accuracy, and even minor errors can derail the entire process. Banks or financial institutions may reject your application if it contains inconsistent or incorrect details.
Such inconsistencies may include a mismatch between the address mentioned in the application and the credit report. An issuer can also reject your application if there are discrepancies in your employment history.
Credit card companies also require you to attach certain documents as proof of your identity, income, or employment. Any discrepancy in these documents can also result in rejection.
Hence, re-check the details before submitting your application to avoid such errors that can cost you the card you want. Take time to gather relevant documents before applying and cross-verify all the details you mention in the credit card application.
Low Credit Score
Credit card companies and financial marketplaces like Bajaj Markets rely on credit history to decide whether to approve or reject your application. A lack of credit score or poor score generally leads to automatic application rejection.
These requirements particularly affect those new to credit or re-establishing it as they cannot apply for a more premium range of credit cards. However, in such a case, you can apply for a secured credit card to build a credit history.
You can get these cards by pledging your fixed deposit and enjoy a credit limit linked to the deposit amount. Exhibiting good repayment behaviour and responsible use will boost your creditworthiness and help you get approval next time.
Limited Credit History
Along with your score, some issuers also consider your credit history while reviewing your application. This is because your previous behaviour will help them gauge how you will use the card in future. If the history is promising, you can get great offers and quick approval.
On the other hand, lack of history or poor history doesn’t help the issuer understand your behaviour. This would translate to a higher possibility of non-payment, which would make them wary in approving your application.
One way to navigate this is to get secure credit to build your history. Secured credit is relatively easier to access because issuers can use the collateral to recover the due in case of non-payment.
Multiple Credit Accounts
While having a healthy mix of credit acts as a booster for your credit score, multiple credit accounts can also become a disqualifier. This is because it affects your debt-to-income ratio, which issuers look at to assess your repayment capacity.
Multiple credit accounts can sometimes even translate into a higher DTI ratio, indicating a higher debt burden. Banks and other financial institutions will consider you a risky borrower giving an impression that you are overextended on credit and struggling to manage them.
To avoid this pitfall, compare different credit card offerings before applying. Review their affordability and ensure that issuers don’t levy fees and interest rates beyond your repayment capacity. If you already have multiple ongoing credits, you can consider consolidating them into one simplified repayment.
High Credit Utilisation Ratio
While credit cards provide various benefits on purchases, maxing them out can also sabotage your future credit application. Credit utilisation is the percentage of credit used against the total available credit.
To potential issuers, a high credit utilisation ratio indicates over-reliance on credit. Hence, banks may be hesitant to issue you a credit card, doubting your ability to manage an additional line of credit.
To improve your chances of approval, you can clear the balance of your existing credit lines. Consider closing certain credit accounts if you have the funds available.
Late Bill Payments
Banks and financial institutions report your credit repayments to credit bureaus. These bureaus compile your credit account details and repayment track record. Banks will report late repayments of your existing debts to these bureaus, which reduces your credit score.
It also implies a higher possibility of non-payment. As such, an issuer may be hesitant to offer you a loan if you have missed or defaulted on your earlier payments.
To avoid any stress in paying your debt obligations, you must constantly assess a loan’s affordability before applying for it. For this purpose, you can use loan EMI calculators offered online by financial marketplaces like Bajaj Markets.
If your credit card application faces rejection, don’t apply for another card immediately as it can affect your financial profile. You can evaluate the reason for rejection. In some cases, you can contact the issuer directly to resolve the issue.
However, in other cases, you will have to work on several aspects of your creditworthiness.
If you follow the best strategies and work proactively to improve your credit and financial situation, your credit score and subsequently the chance of approval will improve.
