Why Did My Credit Card Application Get Declined? Solutions Explained

Rejection of a credit card application is a very common occurrence, and you need not worry about it. There could be multiple reasons why your credit card application is declined, and sometimes, the reason could be as basic as an error in your credit card application. Some other reasons could be low credit score, low salary, or frequent job changes. Whatever the reason, identifying it is very important. Only if you know why your credit card application is rejected you can ensure not to repeat those mistakes when you reapply in the future.

15 Reasons Why Your Credit Card Application Is Declined

The most common reasons for credit card application declined are:

1. Low credit score

A credit score is an indicator of a person’s creditworthiness. This means it tells whether or not you are in a position to repay your loans. It is a numerical value calculated based on your credit history. In India, there are four credit bureaus, namely, CIBIL, Experian, Equifax and Highmark, that calculate the credit score of individuals.
The credit score is calculated based on your repayment history, total loan balance, number of loans and credit cards, and your credit utilization. If you score well on all these parameters, then your credit score will be above 750, which is considered a good credit score. Anything below this would raise a question on your creditworthiness, and your credit card application can get rejected. Hence, it is important to maintain a high credit score to ensure you keep getting loans in time of need.

2. Frequent credit enquiry to the credit bureau

When you apply for a credit card or a loan, you give permission to the bank or financial institution to check your credit score and determine your creditworthiness. The credit history is usually checked to see whether your credit history is good or bad. A good credit history increases the likeliness of your approval of a loan or credit card in the future as it gives confidence to the bank that you will repay your dues on time.
When a financial institution pulls your credit history from credit bureaus, it is called a hard enquiry. Whenever a hard enquiry is made, your credit score drops a few points regardless of credit approval. So, multiple consecutive hard enquiries will reduce your credit score. Moreover, it also means you are not managing your finances well and often rely on credit to pay your expenses. The bank could consider you unreliable, leading to a rejection of your credit card application.

3. Having multiple credit cards

If you have multiple credit cards from different banks and financial institutions, there is a high chance of your credit card application being rejected. Banks check your income-to-debt ratio before approving your credit card application. If your income outflow towards your credit cards or loans is high, then your income-to-debt ratio will be low. This also raises a question about your creditworthiness and ability to repay the credit card dues. Moreover, if you keep transferring the balance on your credit cards or use one credit card to pay the dues of another card, the chances of rejection of your credit card application are high.

4. Loans with multiple lenders

If you have multiple loans, such as personal loans, car loans and home loans, there is a high chance that your credit card application can be rejected. Moreover, if you have loans from multiple lenders, the bank you are applying for a credit card might question your repayment ability and reject your application.

5. The loan balance is too high

Having multiple loans with a very high loan balance would mean you are using too much credit. Having too much credit can reduce your credit score, leading to a rejection of your credit card application.

6. No credit history

Most of the time, the rejected credit card applications are of the first timers. If you have no credit history or haven’t taken any loan, then it might be difficult for the bank to gauge your money management skills and creditworthiness.

7. Late repayment

When lenders pull your credit history, they can see your entire loan history. This includes every detail of your loan, including the loan amount, tenure, repayment, prepayment, default, etc. If you ever paid a loan instalment late, even by a day, your credit score will be affected, which will be reflected in your credit history. This can be a valid reason for the bank to reject your credit card application.

8. Settled or written off

If your credit history has the terms settled or written off in it, then the credit card application would get rejected. This is because they indicate that you have defaulted against your loan payment in the past, and the bank or financial institution has written it off as a bad debt.

9. Discrepancies on your credit report

If your name, date of birth, or other essential details in your credit report don’t match that of your government ID card such as PAN Card or Aadhar Card, then the bank will reject your application. It is best to rectify these mistakes before applying for a credit card or a loan.

10. Frequent job changes

Changing jobs is a common scenario today. However, that is only valid if you genuinely get a good offer that will improve your income and career growth. If you change jobs more frequently, say every six months or one year, then you will not be considered as a dependable applicant, and your credit card application can be rejected.

11. Employer not listed

Banks usually have a list of listed employers that it approves. If you are working in any of the companies it approves, then your chances of getting a credit card are high. However, your application will get rejected if you work for employers that the bank disapproves of or are unknown to the bank. Even if your employment documentation records are unsatisfactory or not complete, then your credit card application will be rejected.

12. Insufficient salary

Having a decent salary is an essential criterion for getting a credit card. Banks usually have a cut-off for salary requirements, and if you fall under this limit, then your application will be rejected. Sometimes, even with a high income, banks can reject your application. This is because your debt-to-income ratio is high. Debt-to-income ratio is the percentage of income you use to pay off debts. If this ratio is high, banks will question your ability to be prepared for an emergency, which can lead to the rejection of your credit card application.

13. Mistakes in the application form

A small mistake in the application form can also lead to rejection of your credit card application. With everything becoming paperless and online, there are high chances of a typographical error (typo). Hence, it is important to enter your name, age, address, and other details right. Moreover, you must recheck your application before sending it to the bank to lessen the chances of rejection.

14. Location verification

Many credit card companies do a physical verification of the address. Hence, you must ensure you have given the accurate address and ensure nothing goes wrong when the bank representatives come for a home visit.

15. Unserviceable location

Credit card companies have a list of cities and towns that are not preferred. This could be due to the poor reputation due to high crimes or poor economic conditions. If you are applying from such locations, then the bank or credit card company will reject your application immediately.
These are just some of the many reasons why banks and credit card companies reject your credit card application. Most of the time, they don’t even reveal the reason for rejection. Hence, you must check the terms and conditions of the credit card issuer before applying. Below are some tips that you can follow to avoid rejection of your credit card application.

12 Tips to Follow When Reapplying for a Credit Card After Being Declined

1. Don’t reapply immediately

If your credit card application is declined, you shouldn’t reapply immediately. You must wait at least a year before applying for a credit card. This will reduce the chances of your application being rejected and also give you enough time to improve your credit score.

2. Check your credit report

A credit report contains the history of all your transactions and gives you an elaborate report of all your accounts. You can see whether you’ve missed any payment or how much credit you use. This will give you an idea of your current state of finances with respect to credit and will help you focus on resolving any issues.

3. Improve your credit score

Once you’ve checked your credit report, you can find the mistakes you’ve committed that impacted your credit score. You can now focus on rectifying these mistakes, such as paying your dues on time or reducing your credit limit. This will help you improve your credit score over time.

4. Apply with a co-signer

If you do not have a credit history or have bad credit, then you can consider applying for a credit card with another person. This person will be a co-signer and will be responsible for your credit card dues in case you fail to pay them. Ensure the co-signer has a good credit history and high credit score, as this will improve your chances of getting a credit card. Alternatively, you can ask a trusted credit card holder to add you as an authorized user. This will help you build your credit history and use the credit card as your own without being responsible for paying the dues.

5. Make sure you check the eligibility of the credit card

Every credit card has predetermined eligibility criteria you must satisfy to get the credit card. The eligibility criteria are usually a minimum credit score, a certain level of income, or even age. You often apply for a credit card without checking its eligibility criteria. To avoid rejection, check the eligibility criteria and ensure you meet them.

6. Pay credit card dues on time

Paying your loan and credit card dues will help you build a good credit history. You can set up auto debit for payments every month to not miss out on a bill payment. This will save you from penalties, avoid missing out on payments accidentally, and help build a credible credit history.

7. Limit the number of credit cards

Having too many credit cards is a hassle, as it can get challenging to manage your debt. Moreover, it also gives an impression to the credit provider that you are relying too much on debt to pay your bills. Hence, it is best to stick to a maximum of three active credit cards to maintain a good credit score. Moreover, it is best to keep a six-month or one-year window between credit cards.

8. Apply for a secured credit card

Credit cards are usually of two types: secured and unsecured. An unsecured credit card is your regular one, which doesn’t need collateral. On the other hand, a secured credit card is issued against your fixed deposit. Since the credit limit on these is against the amount of your fixed deposit, your application will be accepted easily. You should apply for a secured credit card if you do not have a credit history or have a low income or credit score.

9. Limit the credit utilization

Credit utilization is the amount of credit you use against the total credit you have at your disposal. Even if banks give you a very high limit on your credit cards, you shouldn’t use the entire amount. It is always best to keep your credit utilization under 30% to maintain a good credit score. For example, if your credit card limit is Rs 1 lakh, then you must keep the utilization under Rs 30,000.

10. Apply for a basic low-limit credit card

When applying for a credit card, apply for a basic one. A basic credit card has less stringent eligibility criteria, which can be easily met. It also has a low credit limit, which makes it easier for the bank to approve. Once you get the basic low-limit credit, you can use it for some time to build a credit history and a good credit score and later upgrade your credit card to a much more sophisticated one.

11. Choose a trusted bank

Apply for a credit card in a bank or financial institution where you already have a savings account. This will make it easier for them to approve your credit card as you already have a long-standing relationship with them.

12. Diversify your credit

Banks check your credit history before giving you a credit card. A good credit history is built only if you have diversified sources of credit. This means you have loans across different credit products and do not just rely on one source. For example, a gold loan, a personal loan, and a credit card are a much more diversified credit portfolio than having a very high credit card bill. A diversified credit portfolio is as important as paying your dues on time to build a credit history.

Conclusion

Gone are those days when credit cards were used only for emergencies. Having a credit card has become a necessity these days. Moreover, with all those exciting rewards and offers, you can reduce your expenses to a great extent. However, it is important to understand that a credit card is still a debt product, and you must use it cautiously. This is because even a small mistake can affect your credit score, which can lead to credit card or loan rejection in the future. To avoid having your credit card declined, make sure you manage it efficiently and pay your dues on time.

Frequently Asked Questions

1. What does it mean when your credit is declined?

When a bank refuses your credit card or loan application, it means you are not eligible to get credit. Usually, banks give an adverse action letter explaining why they declined your credit card application. You can rectify that mistake and reapply for a credit card after six months.

2. Why am I being refused credit with a good credit score?

A credit score is not the only criterion that banks see when you apply for a credit card or loan. Your credit card application can be rejected for other reasons, including errors in the application form, having too many cards, insufficient salary, age, frequent job changes, or you are living in an unserviceable location. Banks usually explain why your credit card application is declined in the adverse action letter. You can check why the bank has rejected your application, or you can talk to them about the same.

3. Is it bad to apply for two credit cards in a day?

It is always best to wait at least six months before applying for different credit cards. Having multiple credit cards can impact your credit score.

4. Why am I not getting approved for a credit card?

A credit card application can be rejected for multiple reasons. Some of them are low or no credit score, insufficient or low salary, errors in application form, frequent job changes, late payments, and bad credit history. You can check the exact reason why your credit card is being rejected in the adverse action letter that the bank sends you after rejecting your application.

5. Why did I get declined for my first credit card?

There is a high chance that your credit card application will be rejected when you apply for the very first time. This is because you have no credit history to prove your creditworthiness. It could also be because you must have applied for a high-end credit card for which you are not eligible. Apart from this, errors in application form, living in an unserviceable location, and low income could also be a reason why your credit card application can get rejected.

6. How many credit cards should you have?

Ideally, you must have 2-3 active credit cards. This will help you manage your finances and credit better and also help improve your credit score. The more the number of credit cards you have, the higher the impact on your credit score.

7. Does credit card rejection hurt your credit score?

A credit card rejection doesn’t impact your credit score. However, when you apply for a credit card, the bank will make a hard enquiry about your credit history, which can slightly lower your credit score. Frequent hard enquiries can reduce your credit score by a lot. So, it is best to wait for a certain period before applying for credit cards after rejection.

8. How long should I wait after being rejected for a credit card?

It is best to wait for six months to a year before applying for a credit card after rejection. This is because when banks make a hard enquiry of your credit score, your credit score will fall. Banks do an enquiry every time you apply for a credit card. If you apply for a credit card immediately after a rejection, your credit score can fall. Taking a six-month or a year gap can also help you rectify the error for which the credit card is declined and improve your credit score.