Published On: Mon, Aug 27th, 2018

How to Get Approved for a Credit Card

Credit cards have become a part of everyone’s life and hence banks have made it extremely easy to apply for one. One can just fill a form online to initiate a paperless application. While it is easy to apply for a credit card, it is not as easy to get approved, especially for those who have bad credit score. Whether you apply for one of the best credit cards or for an average one, you will be required to meet the eligibility criteria associated with that particular credit card. Although the parameters differ from one card to another, there are a few things you can start working on before you apply in order to improve the chances of getting approved.

photo/ Michael Jarmoluk via pixabay

1- Work on Your Credit Score

Your credit score is the first thing that lenders check whenever you apply for a loan or a credit card. Credit score of 700 and above is considered good but the more premium credit card you apply for the better credit score is needed. Most of the credit cards that come with excellent rewards require a good credit score as well. A credit score of 300-600 is considered bad, 600-700 is average, 700-750 is good and a score above 750 is seen as an excellent score. So, if you are in the band of 600-700, it is advisable to improve your score before applying for a credit card.

The following steps can be taken to improve your credit score-

  • Reduce your credit utilization ratio. For this, you might want to hold back on the unplanned splurges on existing credit cards.
  • Make bill payments on time- whether it is a credit card bill or a loan EMI. Paying off in time not only improves your credit score but also saves you from paying extra money as penalty or late fee.
  • Avoid applying for too many loans at the same time as the banks might consider you to be a credit hungry person. Also, when you apply for a loan a hard enquiry is initiated on your profile which directly impacts your credit score.

Those who are new to credit may also find it difficult to negotiate a good credit card deal. Such applicants should look for best zero annual fee credit cards as banks have less stringent eligibility rules on such cards.

2- Lower Your Credit Utilization Ratio

The reason why we are emphasizing on this is that the credit utilization ratio makes about 30% of your credit score. Lower the ratio better will be your credit score. If you have multiple credit cards, try to stay below 30% of the limit on each of the cards. You can calculate the credit utilization ratio by dividing the balance on each card by the total credit limit. For example, if you have three credit cards and the total balance on these cards is $7,000 and you have an aggregate credit limit of $28,000, then your credit usage is (7000/28,000=0.40) 40%.

You can take the following steps to manage this ratio-

  • Focus on the credit utilization ratio of each card in order to even out the total ratio. Try to stay below 30% on each credit card.
  • Talk to your bank about increasing your credit limit. In the above scenario, if the credit limit is increased to $35,000, it will bring down the ratio to an ideal 30%.
  • Take a disciplined approach to spending by setting an imaginary spending limit for yourself.

3- State Your True Income

Apart from the credit score, lenders also look at your income to determine your eligibility for a credit card and also to set the right credit limit. So, it is important to state your total income in the application form; include any extra income that you might be earning apart from your day job. People with lower income usually do not get approved for a premium credit card so in this case it is good to show a higher income. However, do not overstate your income as it may be considered as fraud by the bank.

4- Shop Around for Better Offers

As soon as you start showing interest in credit cards, a number of banks will approach you to offer one. But you should never settle for the first offer. It is advisable to analyse your spending habits to find the right credit card. Also, when you choose a card, make sure that it offers benefits equivalent or more than what you would have to pay as annual fee. Look for better offers in terms of rewards, cashbacks, travel benefits, grocery discount and whatever else you think you can put on your credit card in future.

5- Do Not Give up if Rejected

If your application gets rejected, you have the right to ask the bank why it happened. But before you call or visit the bank, have a plan in mind. Think about what could have gone wrong and be prepared with a convincing reason to back your reconsideration appeal. For this, you need to study your credit report thoroughly and look for blemishes. Speak your argument politely and listen to the bank representative’s argument.

If you still cannot get the desired credit card, you should probably look for a different card with similar benefits. People with bad credit can go for secured credit cards. These cards require you to make a cash deposit or secure your card against an investment in the same bank. There are a number of secured credit cards in the market that offer excellent rewards. Some of the issuers also give you the option of converting your secured credit card into an unsecured one in future and get free your cash deposit.

Keep the above points in mind before applying for a credit card to improve your chances of approval and also to negotiate a better deal on your new credit card.

Author: Ravi Kumarr Gupta

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