Getting approved for credit is no mean task. When you apply for any kind of credit, be it a home loan, personal loan, or a credit card, the credit provider performs a hard pull on your credit report to determine whether you’re a responsible borrower.
These hard pulls are listed on your credit report and remain there for a few years, impacting your overall credit score rating during this period. While this decrease is temporary, sending out more than a couple of applications in six months or so can significantly reduce your credit score.
Frequent credit applications are also perceived as red flags by lenders, bringing down your creditworthiness in their eyes.
Getting Approved for a Credit Card
Your credit score is one of the main factors considered by lenders while approving your credit application.
In the present situation, credit card issuers are trying to reduce their risk by shifting their business to users with higher credit scores that are less likely to default on their credit card payments.
The pandemic has further complicated the situation, with many people struggling to pay their bills despite a good track record in the past. Resultantly, credit card issuers are pulling back on the current offers for consumers, lowering limits, and increasing score requirements so that they are protected from a spike in defaults and losses.
At present, there are four Credit Information Companies (CICs) licensed by the Reserve Bank of India (RBI) to collect and maintain data related to the credit behavior of both individuals and commercial firms in the country.
This data is used by the CICs to generate your credit report and credit score, which is then used by various credit providers to assess your creditworthiness for approving your credit card application.
While all the four CICs use slightly different algorithms to calculate your credit score, which can lead to differences in your score computed by each, it is the CIBIL score that is most commonly used by lenders to assess your creditworthiness.
It is, of course, worth checking your score with all the CICs, but if you must check only one, we strongly recommend that you understand your CIBIL score first.
For starters, you must know that your CIBIL score is a three-digit number that ranges between 300 and 900. Stats indicate that the closer your score is to 900, the more are the chances of approval of your credit application. In fact, 79% of loans are sanctioned to consumers with a CIBIL score greater than 750.
It goes without saying that the best way to improve your chances of credit card approval is by maintaining a high credit score. For that, you need to know the factors that impact your credit score. These include your repayment history, your existing debts, and the liabilities and the percentage of your income that goes towards servicing these debts.
You can check your credit score on the CIBIL website and get a copy of your credit report annually. Alternatively, you can take a paid membership to receive regular alerts and unlimited access to your credit profile maintained by CIBIL.
5 Steps for Maintaining and Improving Your Credit Score
1. Make Loan Repayments on Time
Making each and every repayment promptly is right for your credit score. Whether it is your loan repayment or utility bills – don’t fall behind on your payments to demonstrate responsible financial behavior.
2. Get Credit for Timely Phone and Utility Bill Payments
Circling back to the above point, it pays to pay your bills on time. Utility payments are recorded on your credit file by some of the CICs, and efficiently managing your bills can potentially boost your credit score and also keep you on top of your finances.
It is worth setting up an auto-debit facility to make sure your payments are made on time without the hassle of remembering multiple payment dates each month.
3. Pay off Your Debts
Reducing your debts is in no small part responsible for raising your credit score. Aim for a credit utilization ratio of 30% or less. This refers to the percentage of your total available credit that is currently being utilized, and the lower this percentage, the better are your chances of approval.
Check out – How to repay your loan.
4. Build a Credit History
Youngsters applying for a credit card often face rejection as they don’t have a credit history. Yes, it is quite frustrating that you need credit to get a credit card, but that’s how it works.
So, if you don’t have a track record to qualify, you can set this right by becoming an authorized user on someone else’s card. This will help build your credit history, and joining someone with a good track record will help your case further.
5. Check Your Credit Report Regularly
Before applying for a credit card, you will do well by pulling out a copy of your report to see where you stand. Scan through every entry and immediately dispute any incorrect listings to improve your credit file and score subsequently.
Tips for Securing a Credit Card Approval
Your credit score is a vital factor considered for your credit card approval. Additionally, you can follow these tips to further improve your chances of getting your credit card application over the line.
1. Minimize Credit Applications
Generally speaking, too many hard pulls on your credit file adversely impact your credit score, which reduces your chances of credit card approval. Of course, you will never know whether you are eligible for a card unless you apply, but you need to go about it strategically to avoid any negative implications on your file.
If your credit score is a healthy figure of 750 or above, you know your chances of approval are bright. Yet, this does not mean you will apply for every credit card offer that looks interesting.
Instead, you need to restrict your options to a couple and then get on the phone with the credit card provider to assess your eligibility for a card before applying for one. It is also recommended to limit your credit applications to a couple in half-a-years’ time and only apply for an additional card or loan if necessary.
2. Consider Different Types of Credit Cards
All credit cards do not require you to have excellent credit. Suppose your credit score is low due to a past default, but you are back on track with your finances, or you are still building your credit.
In that case, you can search for credit cards targeted towards people with a bad credit score. Some options you may consider are secured credit cards, high-fee unsecured credit cards, and even a free credit card issued by your primary bank in some cases.
This will help you in two ways. First, you will have a credit card on your name. Second, you can build your credit history by using this card responsibly to qualify for a better card with lower fees in the future.
For example, if you are applying for a secured credit card, you will be asked to put down some money upfront, or your card will be secured against a fixed deposit in your name. This will give the credit card provider the security for making good their losses in case of a default, and you will get the opportunity of building your credit over time.
3. Wait for a Better Time to Apply
Travel and entertainment cards are generally offered to users with a high credit score. However, with so many restrictions in place in the present times, you can always utilize this period to build your credit history and wait it out to apply for a new credit card once the current economic slump is over.
It is also worth keeping an eye on the latest products and offers launched by credit card issuers to stay updated on any changes in the eligibility requirements.
It isn’t all that difficult to prevent your credit card application from getting rejected. By being financially responsible, you make yourself eligible for lucrative offers from credit card providers looking for new business.
Once you get your credit card, it is imperative that you pay your bills on time. Using CRED can give you that mileage and you will not only be able to the bills, but also garner rewards against the payments.
Doing simple things like paying your bills on time, having genuine savings in your bank account, and maintaining a decent level of income will help you in securing a credit card approval.
Of course, you need to continue your responsible behavior once you have your credit card in hand, as defaults in paying your credit card bills can pull you in a circle of debt while tarnishing your credit report for a long time to come.