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Applying for a credit card can be a painful process and a denial is a frustrating outcome. But it’s usually a chance to consider your financial habits and creditworthiness. Let’s take a look at not only the most documented reasons credit cards are denied but also how to create opportunities.
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Reasons why your credit card application gets rejected
1. Insufficient credit score
The most likely reason you are denied is that you received a low credit score. Usually, lenders are looking to see credit scores that are 700 – 750 and above. Even if your score is a fair test or taking value it doesn’t mean you will receive a credit card. There may be errors in your credit report, phantom defaults, duplicated factors within it, discrepancies in one report with another.
2. High credit utilisation ratio
Your financial discipline will be in jeopardy if you use more than 30 to 40 percent of your available credit. Lenders often turn away applications from borrowers that were, and still are, using a considerable amount of borrowed funds.
3. Existing debts
Having multiple different EMIs or unpaid loans could lead lenders to view you as over-leveraged. If your debt-to-income (DTI) ratio is not high, it may not be possible to absorb another debt repayment.
4. Insufficient income or employment stability
Banks look at your income to determine if you can afford the specified monthly payments. Even a good credit score cannot guarantee an applicant’s acceptance when they have worked in a given role for less than six months, have an inconsistent employment history or have low wage slips.
5. Incomplete application form
Errors in your application might lead to it being denied, such as incorrect income details, missing signatures, unclear proof of address, or missing supporting documentation.
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6. Short credit history
Lenders have little understanding of your repayment behaviour when you have little or no credit history. Those applicants who have never had a credit card, loan, or other type of credit may be rejected.
7. Frequent application for credit
Applying for credit cards or loans in quick succession marks you a high-risk borrower. This “credit inquiry” behaviour can diminish your chances of approval and convey that you are acting desperately.
8. Ineligible age or occupation
Some banks will only support specific job industries, self-employed people, or salaried individuals, and they have other age restrictions (generally 21 to 65). You could see your application not getting approved because you didn’t meet their profile.
9. Relationship with bank
Even if they have been paid off, applicants with a history of defaults or loan defaults are perceived doubtful. In addition, your prospects may also be affected if you have a bad history with the same bank and have had some checks returned.
10. Low account tenure with the bank
Some issuers prefer customers who’ve left an account open for at least six to twelve months. A new bank account may not help show loyalty or reliability.
Having your credit denied is a sign, not the end of the world. Look at the rejection explanation, if provided; sort out what was lacking and improve your credit score, consistency of income and quality of documents. In a few months’ time, when you’ve addressed these important elements, re-apply.
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In conclusion, by understanding and avoiding these common mistakes, you will be developing a better credit profile and more stable financial future versus just trying to get approved.
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Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
