Has Your Credit Card Request Been Rejected?

Posted by mymoneymantra on April 6th, 2018

Rajesh has been receiving phone calls frequently from telemarketers offering him Credit Cards. Initially, he went on refusing to accept these offers. One fine day, he saw that he was in need of funds. Just at that moment, he received a telemarketing call offering Credit Cards. Rajesh jumped at the offer and accepted it. To his dismal, about seven days later, he received a letter from the bank stating that his Credit Card request has been rejected.

Now, Rajesh was furious. In the first place, he did not actually Apply for a Credit Card on his own. The bank offered to give him one. When he submitted the application, he got a rejection letter. This story is not an isolated one. There are hundreds and thousands of people like Rajesh who face such situations. They have a right to know why their applications are rejected and what they should do to rectify the situation.

How and why do banks reject Credit Card applications?

One must understand that the decision to issue or reject a Credit Card is the prerogative of the bank. They are obliged to provide an ‘Adverse Action Letter’ whenever they reject a Credit Card application. This letter lists out specifically why your application is rejected. In case you require a free copy of the credit report, the letter lists out ways for you to get one as well. Here are some of the principal reasons why banks reject Credit Card applications.

Low Credit Score:

Any credit score below 750 will make you ineligible for Personal Loans and Credit Cards. There are various reasons why your credit score is low. Here are some of them. 

Irregular Loan Repayments:

If you are irregular in your loan repayments with frequent instances of delayed payment, the Credit Card issuing banks will be hesitant to issue Credit Cards. They will feel that you might default on these payments as well. The solution is to regularize your loans and be prompt in your repayments.

High Credit Utilization:

This may sound unjust that banks provide you with decent limits to use. When you use them to the maximum, credit bureau penalizes you for utilising these limits. The best credit utilization ratio is around 25% to 30% of your limit. Maintain your Credit Card utilization within 30% for your applications to be considered favourably.

A High Number of Credit Enquiries:

This is what happens when you accede to the offers of every telemarketing call you receive. Every application entails a credit query. The higher the number of enquiries, the higher are your chances of rejection. It shows that you are desperate for credit. When you are desperate for credit, the chances of mis-utilisation are high. This results in a higher default rate. The solution is to reduce the number of enquiries for favourable consideration of your Credit Card applications.

Low Income:

This has nothing to do with the credit report. The banks have an internal process of evaluating any loan application. If your income or more importantly, your net take-home pay falls below the prescribed limits for the bank, they have a right to reject your Credit Card application.

Many Credit Cards:

Though there is no hard and fast rule about the maximum number of credit cards you can possess, banks do reject applications when they find a high number of credit cards as compared to income levels.

Written Off or Settled Accounts:

The credit report lists out the written off and settled debts of the borrower. Having such qualifications in your credit report can dissuade the banks from offering fresh credit cards. Now, no one would like to burn their fingers.

Limited Credit History:

Credit bureaus like CIBIL consider credit history of people as one of its important qualifying norms. In case you have an inadequate credit history, the banks are not in a position to decide your credibility. It might sound ironic to many, but the banks have their rules to follow.

Not Old Enough to Get a Credit Card

You need to be at least 23 years of age in India to enter into a contract. When the bank grants you a Credit Card, you enter into a contract with the bank. Persons below 23 are not eligible for Credit Cards in India in their own name.

Incomplete application

You should take care to fill up the application properly. If you miss out certain details, the banks are within their rights to reject your application for a Credit Card.

Unstable Employment Record

Banks look for stability in your income levels to be able to service their payments and interest. If you have an unstable employment history, it makes you ineligible to receive a Credit Card.

We have seen 10 reasons why your bank has rejected your Credit Card application. Now, what are you supposed to do? Is this the end of the road? No, you have a chance to redeem and apply for a Credit Card again. But, you should go through the credit report and the Adverse Action letter to rectify the situation.

You should immediately take some of the following steps to redeem the situation.

• Be prompt in your loan repayments. Never default even for a single month. Your credit score will improve.
• Check out the credit score. Some of the old accounts might have been closed by you but credit bureaus might not have updated them. Take up with the bureaus and the respective banks to rectify the anomaly.
• Limit your Credit Card utilization to around 25% of the credit limits. If you have more than one card, distribute the limits among all of them instead of concentrating on one particular card.
• Limit the number of enquiries. Apply for a loan only when you really need one.
• Distribute your loans and maintain the secured vs unsecured balance properly. A high percentage of unsecured loans can be detrimental to your interests.

Considering the factors mentioned above, you can improve your chances of getting a Credit Card approval.

Also Read : All You Need to Know About Credit Score

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