Applying for a credit card might seem to be an easy process, but getting approval for the card of your choice needs a lot of critical planning. Experts from mymoneykarma are here to enlighten you on a few quick points that you must consider before submitting your application.
Understand Your Credit Score
When you apply for a credit card, the issuer refers to your credit report to decide whether your application can be approved. It is the predominant factor that determines your eligibility for a particular credit score. If your credit score is below 600, most lenders interpret it as bad credit. A score between 630 and 690 is considered to be average, and something between 690 and 720 indicates good credit. Anything above 720 is generally considered to be excellent and you could expect to be eligible for the desired credit card or loan.
Rewards credit cards are desirable to most individuals; they require good or excellent credit. If a rewards card is your target, you better buck up and improve your credit score. You should make timely payments, keep your credit balance low and avoid getting into debt. If you do not have enough credit points to qualify for a rewards card, consider secured cards to help you build credit and qualify for a rewards card sometime in future.
Reduce Your Credit Balance
Your credit utilization, or the portion of your credit limit that you spend in each billing cycle, has 30% weight in determining your credit score. Never spend the entire credit limit available. Your credit utilization rate reflects your spending habits. Thus you are expected to be mature and spend responsibly. Most financial advisors say that a credit utilization of 30% and below is ideal for your credit health. That means if your credit limit is ₹1,00,000, then you shouldn't spend more than ₹30,000.
Try to pay off your balances more than once in a month to maintain an average credit utilization of less than 30%. Alternatively, devise an effective strategy to keep your credit utilization low. If you can convey to potential lenders that you handle credit responsibly, it is more likely that they will trust you with more credit.
The search for the perfect credit card could be quite frustrating. At the same time, the offers could be incredibly lucrative. Do not rush with your application. Whether your application is approved or not, each credit card application turns up on your credit report as a hard inquiry. Too many hard inquiries will make you seem desperate for credit and lenders will refuse to trust you. Don't get tempted by a large sign-up bonus or a tantalizing rewards program. Be patient and weigh your chances before applying.
The lenders understand your creditworthiness from your credit report, but they also need to calculate your debt-to-income ratio (DTI) before approving your application. Your debt-to-income ratio indicates your ability to repay. However, your income is not a part of your credit report. If you wish to qualify for a good credit, you must prove to the lenders that you earn well. Include your total income in the application. The total income should include any other source of income apart from your full-time job. You might need to provide documents as evidence for the same. Be careful - don’t provide false information on the application: it is considered to be a credit card fraud.
You should also calculate your debt-to-income ratio before applying. By doing so, you can gauge your chances of getting approval for a credit card. A high DTI indicates poor chances of getting new credit.
There is a slight chance that your application might still be denied in spite of taking all the correct steps. Don't worry. There are ample options. Credit card issuers might reconsider your application if you can plead and convince them. You could also wait for a while and reapply. If you wish to play safe, go for a secured credit card which would be much easier to get. Don't take the rejection too hard upon yourself.