Applying for a credit card can be an exciting step. However, getting your application declined can be frustrating. Knowing why this occurs can help you improve your chances next time. Here are 6 common reasons why your credit card application may get declined.
1. Low Credit Score
Your credit score is a crucial aspect considered by lenders during the review. A low score means a higher risk, which could make lenders hesitant. Factors that lower your score include:
- Missed or Late Payments: Missing payments can hurt your credit score
- High Credit Utilisation: Using most of your credit limit can lower your score
- Recent Credit Inquiries: Applying for multiple loans or credit cards in a short time can lower your score
To improve your score, make payments on time, and reduce your debt. Avoiding new credit applications can also help.
2. Insufficient Income
Lenders need to know you can repay the debt. If your income is too low, they may decline your application. Factors that contribute to this include:
- Low Salary: A low income can be a red flag for lenders
- Unstable Employment: Frequent job changes can signal financial instability
To improve your chances, ensure your income is stable. Moreover, check if it meets the lender’s requirements.
3. High Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is the amount of your income that goes to debt payments. A high DTI ratio means you already have a lot of debt. Lenders may see you as a risk. Calculate your DTI ratio by dividing your overall monthly debt payments by your gross monthly income.
To improve the DTI ratio, you can pay down existing debts and avoid taking on new loans.
4. Limited Credit History
Lenders rely on your credit history to decide if you are a good risk. If you have not used credit much, they have little information to base their decision on. Factors that contribute to a limited history include:
- No Credit History: If you are new to using credit, you may not have sufficient credit history
- Inactive Credit Accounts: If you rarely use your credit accounts, it can limit your history
5. Errors on Your Credit Report
Mistakes in your credit report can hurt your application. Common errors include:
- Wrong Account Status: Accounts shown as late or delinquent when they are current
- Incorrect Personal Information: Mistakes in your name, address, or Social Security number
- Duplicate Accounts: Accounts that appear more than once on your report
Check your credit report often. Dispute any errors to improve your score.
6. Too Many Applications
Applying for many credit cards or loans in a short time can be a problem. Each application results in a hard inquiry on your report. This can lower your score. It can also make you look desperate for credit, which is a red flag for lenders.
To avoid this, limit the number of applications you submit. Space them out over time. Research the eligibility requirements and apply for cards that match your profile.
Tips to Improve Your Chances
Here are some tips to boost your approval chances:
- Check Your Credit Report: Review your report for accuracy. In addition, dispute any errors you find
- Pay Down Debt: Reduce your outstanding debt to improve your score and DTI ratio
- Build Your Credit History: Use a secured credit card or become an authorised user to build your credit history
- Maintain Stable Employment: Having a steady job with a regular income can help
- Space Out Applications: Avoid applying for many credit cards in a short period
- Use EMI Calculators: Bajaj Markets offers an app like the EMI calculator. You can utilise it to manage your finances better.
- Make Timely Payments: Ensure payments, including utilities and loans, are done on time. Late payments can negatively affect your score.
- Keep Credit Utilisation Low: Aim to use less than 30% of your available credit limit. This shows you are not overly reliant on credit.
- Avoid New Credit Applications: Each new application results in a hard inquiry. This can potentially lower your score. Limiting the number of applications can be beneficial.
- Check for Errors: Regularly review your credit report for mistakes. Dispute any errors to ensure your score is accurate.
- Pay Off Debts: Focus on paying off high-interest debts first. This reduces your overall debt and can improve your credit score.
- Use Credit Wisely: Make small purchases on your credit card and pay them off in full each month. This helps builds a positive payment history.
Ways to Build Credit History
- Use a Secured Credit Card: This type of card requires a deposit, which acts as your credit limit. Using it in a responsible way can build your credit history.
- Become an Authorised User: Ask a family member to include you as an authorised user of their credit card. This can help build your credit history.
- Keep Accounts Open: Do not close old accounts. The length of your credit history affects your score, so keep your accounts open and in good standing.
Getting a declined credit card application can be tough. But understanding the reasons can help you improve. Build a strong credit history, maintain a stable income, and manage your debt better. By addressing these factors, you can increase your chances of approval next time.
Financial services by Bajaj Markets, provides ways to help manage your finances. Explore their offerings to make informed decisions and improve your credit profile. Use tools like the EMI calculator to plan your finances better. This can help ensure you are ready for your next credit card application. With the right approach, you can turn a declined application into an approved one in the future.
