Applying for a credit card and then facing rejection can be a humiliating experience. More often than not, banks reject credit card applications and do not a definite reason, which ends up creating confusion. If you have also been wondering why your credit card application was denied and you haven’t figured out the cause yet, worry not; there are several ways to fix the issue before you reapply for one.

Let’s begin by taking a closer look at the uses of a credit card before diving into the reason for rejection.

What are the Uses of Credit Card?

Nearly 50 million credit cards are used in India. Many people look at credit cards as plastic money that can be used anywhere, anytime. However, these cards hold more value than you may realise. Other than being a means for making purchases, a credit card helps you earn reward points, spread out purchases, handle unplanned expenses, and even build a notable credit score. Banks offer various opportunities to get discounts, rewards, and coupons with each swipe, as well; which means you also stand to save a little by owning a credit card.

Credit cards also give an excellent opportunity to buy now but pay later. So, whether you’re planning to buy a big-ticket purchase or going through an unforeseen emergency, credit cards can be your saviour. Most credit card users avail the facility of borrowing money at 0% interest, which can be paid in the form of monthly payments, or EMIs. 

Apart from making purchases and borrowing money, credit cards help you build a rapport with the bank, which could help you maintain a healthy credit report. As a result, the bank won’t hesitate much before lending you a higher sum of money in the form of a loan in the future, if need be. You can also use your credit card to transfer existing debts to one credit account. This is a way to reduce the amount of money you pay on interest while paying off the debt quicker. 

Opportunities like earning cash-backs also make credit cards a popular option, especially with the rise of e-commerce websites. Additionally, when it comes to safety, credit cards are considered safer than debit cards. That’s because most financial gateways offer maximum security and protection during each and every transaction. These cards also let you withdraw cash from ATMs, an option that comes as a blessing during international travels and medical emergencies.

Thus, in other words, people use credit cards for a variety of reasons and avail several benefits from them. As a matter of fact, many people own more than one credit card to make the most of the benefits they offer. 

Pros and Cons of Using a Credit Card

Credit cards are often seen as a means to become more financially independent, but they do come with their set of pros and cons. Let’s consider both the advantages and disadvantages of owning credit cards.

Pros

  1. Help build a credit score

One of the most significant benefits of using a credit card is that it helps in creating an excellent credit score. Since the bank keeps records of your installments and their payments, you get a set record of your credit history. This can help you get loans and other credit cards easily in the future.

  1. Safe and secure

Card payments are more secure than cash since payment as financial transactions carry out various security checks, eliminating fraudulent purchases. While shopping in the international market, online and offline both, these cards ensure safety and ease of transaction. Similarly, the need to carry high amounts of cash is done away with, and you can simply use your card to make a variety of purchases.

  1. Added benefits

You also get a chance to receive reward points and benefits that accrue over the years to reap major benefits. Many credit card companies partner with online shopping sites and retailers to come up with lucrative deals with their card users, thus maximising benefits for their customers. 

  1. Instant money

Having the ability to pay for emergencies, including medical ones, is one of the biggest benefits of owning a credit card. From making big transactions and withdrawing cash from the ATM, you can do it all by taking an instant debt from the bank by using your credit card. 

Cons

  1. High cost of borrowing

One of the biggest disadvantages of using a credit card is that it comes with a high cost of borrowing. These cards are convenient to use, which makes them popular among customers, despite their high rate of interest.

  1. Payments need to be tracked

Another major disadvantage of using a credit card is that keeping track of your transactions and payments can be overwhelming. As a result, many people end up miscalculating their debt, failing to make the required payments in time, which affects their credit score in return.

  1. Extra charges levied by the bank

Banks tend to charge various annual fees for their services and hefty late fees for missed payments. When added up together, these fees and charges constitute a significant figure. Owning multiple credit cards – especially when you fail to make payments in time – could prove to be detrimental to your credit score. So, ensure that you swipe your cards only when you’re sure about making timely payments.

The key with credit cards is to keep track of both your spending habits, as well as payments. Being more disciplined, keeping a record of your bills, and setting payment reminders can reduce credit card related stress to a great extent.

How to Apply for a Credit Card

When used mindfully, a credit card can prove to be a boon, especially on rainy days. To reduce the chances of rejection, begin by checking your credit score. Anyone with a good credit score can apply for a credit card. Credit agencies like CIBIL, Experian, Equifax, and CRIF High Mark will give you definite results instantly. In case you’re a defaulter, look for practices to improve your credit score and then apply. 

Next, you may start looking out for a credit card that meets your demands. Every bank offers different credit cards with unique benefits. Browse through these cards online, read every detail carefully, and then finalise your pick. In many cases, banks offer pre-qualified cards to their regular account-holders, too.

Once you have finalized the financial institution and their credit card offerings, you could apply for them directly. You’ll have to share your income information, including the income that you earn from other passive sources, to help the issuer calculate debt-to-income ratio. Do not provide any false information and wait until they update the status of your application.

Top Reasons Why Credit Card Applications Get Rejected

  1. Low credit score

Essentially, your credit score determines how your application for a credit card would fare. Many credit monitoring services calculate and determine your score at nominal charges. Before finalizing the card, you intend to apply for, figure out the minimum credit score required, and if your score meets the criteria. If your score is low, you can take measures, such as repaying existing debts to improve your score. In case you get any false information in your credit report, you can highlight it with the bureau, get it corrected and then apply for a new card.

  1. High existing debt

A bank can reject your credit card application even if you have a good credit score. Banks consider your debt-to-income ratio before accepting or rejecting your request for a credit card. This ratio helps the banks figure out whether you’ll be able to repay the debts within the decided time frame.

Many online tools can help you analyse this ratio and help you determine your ability to repay debts at a given point. In essence, the higher your mortgage, the riskier it would be to lend you money through a credit card, from the bank’s perspective; thus, the higher the chances of rejection. 

  1. The applicant is too young

While age is just a number, but banks do take these numbers seriously. Banks require you to be 18 or above with a required number of independent income before they can assign you a credit card. Banks strictly follow this rule because they cannot take any legal action against minor defaulters. While some banks accept parents as the co-applicants of under-aged applicants, others do not. Ensure that you check with the bank before filling out the application.

  1. Low income

The issuer of the credit card can reject any application that does not meet the minimum income requirements. Again, this factor is analysed to determine your ability to repay the monthly payment promptly, regardless of your credit score.

Every bank offers different credit cards that are suitable for various income groups and lifestyles. Do your research and compare cards before filling out applications. Your occupation and the reputation of your employer can also determine whether your application gets accepted or rejected. 

  1. Missing or incorrect information

Getting a new credit card seems exciting but do not make mistakes while filling out the application. Lending money in any form involves risk for the bank; hence, they take each application seriously and scan it carefully before reaching a decision.Each application goes through several rounds of scrutiny.

So, ensure that you fill all the details with due diligence and showcase honesty to reduce the chances of getting rejected. Apart from this, avoid filling in any false detail or information.

  1. Already owning multiple credit cards

Owning too many credit cards, especially from the same issuer, could keep you from getting another one. The simple reason being that you could max out on all credit cards and fail to make the payment for all of them.

So, in order to avoid this risk, banks try and not issue several credit cards to such individuals. Instead of applying for a new card, you could pay all your debts and ask for an upgrade on your existing card.

  1. No or limited credit history

You might think that not having a credit history could boost your credit score, but this situation is not considered ideal by the banks. Lack of experience with credit management shows a lack of credibility and creditworthiness.

In this case, it becomes almost impossible for financial institutions to gauge how you will handle debt or make payments. Thus, you may opt for a beginner credit card or maintain a trustworthy account with the issuer to create faith.

What to Do if Your Application gets Rejected

Thorough research and caution reduce the chances of your credit card application getting rejected, but there are certain factors you must consider. Firstly, if your application got rejected due to an error or missing information, consult the representative from the bank and request for revaluation.

In case your application was rejected due to your bad credit score, work on improving it by taking the necessary measures. Else, try to determine the exact reason, get all your doubts clarified, and reapply only when you’re confident. You could consider consulting a financial expert for the same. Showing the financial organizations that you are a credible and viable individual will help your chances of getting a credit card at the earliest.

Rejection of credit card application hurts, especially if you believe that your credit health is impeccable. Whether the bank rejected your application because you’re too young, or have too much debt, try to understand the reason and work towards remedying the same. Before applying for a credit card again, analyse if you need another one or whether you can keep up with the payments in the long run. Apart from keeping your credit score game up, try and build a good harmony with the bank by showing your credibility and consistency. 

However, if you’re already falling behind on payments from multiple credit cards, consider taking an instant personal loan to consolidate them. This will help you manage your debt better and also assist you in repaying it quickly. PaySense offers personal loans for debt consolidation up to Rs. 5, 00, 000 without any collateral. To know more about personal loans from PaySense, please write to [email protected].