Applying for a Credit Card is an exciting step toward financial independence. However, many fear of their application net getting approved. Have you ever wondered what goes into deciding whether or not you receive the card?
Lenders consider several factors before deciding. If you understand these factors, you can improve upon them to increase your chances for approval.
Factors that impact your Credit Card approval chances
Here are six critical factors involved in the process:
Your credit score
A person’s credit score is among the initial things lenders consider. It indicates how well he/she has managed credit previously. Therefore, a better score enhances one’s chances of getting approved, and a poor score can invoke rejection or impose a lower credit limit.
By paying bills regularly and on time, clearing outstanding debts, and not applying for numerous loans in a short period, you can greatly improve your credit score.
Your employment status and income
The lenders want to ensure you can repay the money that you have borrowed. Regular income and a regular job means financial security and this works to your advantage.
How to improve? If you can, show evidence of regular income like salary vouchers or Tax Returns; self-employed persons must demonstrate consistent records of income.
Your debt-to-income ratio
This ratio compares your monthly debt repayments with your income ability. The lower the ratio, the better it indicates your ability to afford new credit.
Make sure to keep the old debts as low as possible before grabbing a new card. For greater chances at approval, it would help to ensure that your DTI ratio doesn’t exceed thirty percent.
Your credit history
Lenders check how long you have been using credit and how well you have managed it. The longer the history of responsible credit use, the lower risk they see you as.
How to improve? Keep older accounts open, even if you rarely use them. Closing old accounts will shorten your credit history, harming your score.
Number of recent credit applications
When you apply for many cards or loans all at once, you may be perceived as credit-hungry, which cramps your approval chances.
How to improve? Limit credit applications. Do your homework on various cards and apply when you know you meet the criteria.
Types of credit you use
Lenders tend to favour those with a good mix of credit types, for example, a blend of Credit Cards, loans, and other credit facilities. This indicates that you can handle various types of debt with responsibility.
How to improve? Consider broadening your credit mix responsibly, like taking a small Personal Loan and paying it back on time if Credit Cards are your only credit type.
Additional tips to increase approval chances
- Check and keep a record of your credit report for any errors.
- Keep your credit utilisation ratio low, around 30% or lower than that.
- Be disciplined in saving, spending, and budgeting.
- Consider secured Credit Cards to help build a credit history if you have low credit.
Conclusion
Getting to know these six factors can increase your chances of acquiring Credit Card approval. Should your application get turned down, do not worry! Get working to improve on the aforementioned factors and apply again when the time is right for you. A little time and planning in the application process can work wonders in obtaining the right card for your needs.
