Applying for a loan or a Credit Card is no longer a cumbersome task. Thanks to the internet, today, it’s as easy as filling an online form and clicking submit (literally)! Then, it’s just a matter of days, and sometimes hours, before you know whether your application has been accepted or rejected.
Accepted – yeah! Time to break into a quick dance.
Rejected – Oops! It’s okay. Don’t be all torn up about it. We can fix it. Let’s see what went wrong.
Review your application
Put your application under the scanner. Is there a typo somewhere or did you miss a digit when filling the income section? These little mistakes have grave repercussions. So, double-check your application before submitting it. Go over each letter carefully. Make sure you have mentioned all the details and correctly so.
A quick tip for you: Mention all your sources of income when submitting your application. Higher income = Higher chance of getting a loan or a Credit Card.
Check your Credit Score
Talking about your Credit Score, did you check it before submitting your application?
You can request your Credit Score from any of the credit rating agencies—CIBIL, Equifax and Experian. All of them will essentially reflect the same score. As per general standards, a Credit Score of 750 and above is readily accepted by banks and financial institutions. It speaks well about your financial history and how you manage money. If you find that your score is anything below 750, it could very well have been the reason for a rejection. Always check your Credit Score before submitting your application. This will allow you to raise your score if it’s not up to the required mark.
Additional Reading: Tips To Improve Your Credit Score
Some good news for citizens of India – up until now, you had to pay to get a Credit Report, but by the end of the year, you could get one free Credit Report a year from CIBIL.
So what factors influence your score?
Managing debt
Do not apply for another loan or Credit Card if you are already under a mountain of debt. It’s like shooting yourself in the foot. First, your application will get rejected and then your Credit Score will take a hit. Clear off some of that debt before applying for another loan or Credit Card. Your chances of getting your loan or Credit Card application approved will definitely be higher.
Not paying your credit dues on time
Have you been missing your Credit Card and loan repayments? This is one of the most popular reasons for a poor Credit Score. Credit agencies are notified about such lapses on your part and will consider these details while determining your Credit Score – almost needless to say, the result is not positive. The solution is to pay your dues and then reapply once your Credit Score has improved.
Maxing out your Credit Card
You say you pay your dues on time, but max out your Credit Card every month?
Yes, this also hurts your Credit Score. Just because you have a Credit Card with a larger limit, doesn’t mean you should use it to its full potential. It won’t matter if you are paying your dues on time. Maxing out your card translates to ‘I can’t survive without my Credit Card’. Now, this is not the impression we want to give bankers, is it? If you are maxing out your card, how are you expected to repay your loan or pay for another Credit Card? Limit yourself to using 30% of your credit limit. Maxing out your card is a poor financial practice.
Maintain a good mix of credit
You say that none of the above apply to you? In fact, you have never taken a loan or any other kind of debt.
We Indians take pride in having a clean credit slate. But when you apply for a loan or a Credit Card, this will work against you. Financial institutions have nothing on which to judge your repayment capacity. That’s why a healthy mix of secured and unsecured debt will work in your favour. This tells the banks that you have experience servicing debt. Now the catch is how do you go about getting your very first loan or Credit Card? Well, you can begin with a secured Credit Card. It is issued against a Fixed Deposit and will help you build a credit history. So, while a bad Credit Score will definitely hurt your chances of getting a loan or a Credit Card, not having a Credit Score at all is no good either.
Credit History
Build an impressive credit history. Taking loans and Credit Cards is not bad. Bad is when you don’t make repayments on time. In fact, if you service your loans well, banks and financial institutions will readily give you loans in the future. They might even lower the interest rate for you if you ask.
Additional Reading: Debt Consolidation 101: Getting The Basics Right
The bottom line is to take a stock of things before submitting your application. Don’t be hasty. Take your time, compare deals and then apply. Follow these tips and you will be well on your way to getting that loan or Credit Card application approved! Easy-peasy!