When one’s credit card application gets approved, the implied meaning that he carries good credibility is a reason to cheer. But when the same application gets declined, the applicant will be left guessing. Banks mostly do not explicitly explain the reason for rejection and only a generic rejection letter is received by the applicant. Generally, one would tend to believe that the reason for rejection has been the credit profile. But that may not be true. Let us look at the reasons that can lead to rejection.
High debt burden ratio
Most of the banks follow a 1 : 1 formula for calculating the eligibility. Meaning, half of the income would get set off as the living expenses and the other half as the available income to pay off the debts. In case you have taken a loans in recent past and the outstanding is quite high and the debt burden ratio is about 50%, the card application may get rejected.
High utilization on existing cards
In case you are maxing out on the existing card limits, the same may go against you and lead to denial on the new card request. This will get deemed as a financial stress or a possibility of one not understanding the implication of high usage. In both the cases, the chances of default are since higher, the rejection can be the outcome. A prolonged high usage on card limits will also lead to impacting the credit scores adversely.
Too many inquiries
In case you have applied for multiple credit cards simultaneously or have been applying for various credit instruments in recent past, the chances of rejection are higher. Every time you apply for any loan or any other such facility, the same gets captured as an inquiry on the bureau report. Too many of such inquiries can also be the cause of rejection.
You own too many cards
While one would tend to believe that while he is paying back well in time, the banks would not have an issue in extending him a new card, but that may not be the case. Owning too many cards can also be one of the reasons for rejection. There is no fixed number of cards that will lead to rejection, it will vary from one bank to the other.
Delinquency in recent past
In case you have had repayment issues in last few months, the same can also lead to the application getting denied. Any lending institution will check the recency and pattern of the delinquency. In case the same does not fit into their prescribed norms the outcome is going to be a denial only.
Errors on bureau report
Your bureau report can have errors. And note that having an error on the report is not uncommon. As per a study, one of four reports have errors. The errors could vary from a wrong update on repayment to a loan that you have not taken, being part of the report. Such errors have the potential to swing the credit score southwards and hence can lead to refusal. It is advisable that you obtain your free CIBIL report and verify the details.
Age at the time of application
If the application has been made before you turn 18 years, then the same may get rejected for the age constrained. No credit request gets approved before 18 years of age. Some banks may even have a minimum criteria of 21 years.
Short job history
In case you have just started to work after completing the education, the banks may want you to continue to be in same job for a few months before your application can be considered for approval. In case you have applied immediately after joining the job, the possibilities of a rejection are higher.
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