BackCredit card denied, but why?
If the bank sees you as high-risk with low repayment capacity, your application will be rejected.Before you apply, check your repayment capacity, credit report and credit score
PremiumMumbai: When 28-year-old Divyesh Thakker, an imitation jewellery manufacturer in the city, applied for a credit card last year, the bank denied his application. “My application for a credit card was rejected. The bank told me they do not provide credit cards to businessmen," said Thakker. He required the credit card for regular day-to-day expenses. As he couldn’t get a credit card, he had to resort to consumer durable loans and personal loans. For emergency expenses, Thakker turns to his family and friends.
Not just self-employed individuals, salaried individuals also get rejected for credit cards. However, the overall credit card numbers have increased after banks started focusing on retail customers considering the increasing non-performing assets (NPA) issue from corporates. According to the Reserve Bank of India (RBI), the total outstanding credit cards increased to 44.21 million in December 2018 from 26.15 million in December 2008.
Unlike 10 years ago, today it is much easier to get a credit card. There are more than 300 variants of credit cards available in the market. However, there is still a possibility that a bank may deny you a credit card. Here is a look at why your credit card application can get rejected and if you actually need it in the first place:
Why the denial
Any credit card issuing company will want the card holder to repay the money. In case the bank sees you as a high risk individual with low-repayment capacity, your application will get rejected. “Perceived risk is higher for business professionals and self-employed individuals," said Suresh Sadagopan, founder of Navi-mumbai based Ladder7 Financial Advisories.
Hence, if your profile indicates that you will not be able to repay, your credit card application can get rejected. To understand your repayment capacity, the card-issuing company will look at your credit score and credit report. This is usually the first check to understand your financial behaviour.
According to Navin Chandani, chief business development officer of Bankbazaar.com, an online market place for banking and investment products, bureaus consider repayment history, loan servicing, and credit mix, among other factors to determine the credit score of an individual.
“A low credit score is often the result of not having paid your dues on time in the past – either because you have defaulted on payments or not closed credit accounts properly. Also, if you’re using too much of your available credit, especially if you have maxed out your cards, your credit card application will be denied," he added.
Even if your credit behavior has improved, but your credit report has a red flag due to past default on any loans, you will not be able to get a credit card. Also, when the card-issuing company comes across a credit-hungry customer, they reject the application.
“You should not apply for multiple credit cards at the same time as all of them may decline your application. This often happens as you come across as someone too eager for credit. It can also happen, irrespective of your repayment credentials. Note that each application lowers your credit score marginally," said Chandani.
What you should do
Credit cards can be useful if you use it well. You must remember that credit card is not free money. You have to pay the bills before the due date to avoid any penalty on interest charges.
To ensure that your credit card application is not denied, first understand your repayment capacity. Go for it only if you can repay on time.
Before applying, you must also check your credit report and credit score. If your score is low, check if there are errors and rectify it.
In case your application for a credit card is rejected owing to non-repayment of previous loans, then you should first start paying your previous loans on time.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
