Looking to get a credit card to add cashless edge? Zero credit history may put a spanner

The move towards a cashless economy has resulted in an increase in number of credit card applications. While applying for a credit card is easy, ensuring it does not not get rejected, is not as easy. This is because card issuers employ strict checks before doling out credit cards to avoid potential fraud.

"Over the last month, we have seen our credit card searches increase by more than one million. Correspondingly, we have seen a substantial percentage increase in applications as well,'' says Navin Chandani, chief business development officer, BankBazaar.com.

An application for a credit card can be rejected for either one or multiple reasons such as:

Poor credit history: Your credit history is the first check. Every credit-card provider checks the credit score of the applicant as provided by credit bureaus such asCibil and Experian. "The bureaus' credit score reflects the financial behaviour of individuals, based on information provided by banks,'' says Chandani.

Issuers also study data of utility-bill payments, loan repayments, multiple balance transfers, etc. That issuers are unlikely to offer credit to persons who struggle to manage credit is a no brainer.

Low credit score: This is one of the most common reasons for rejection of a credit card application. "In India, the credit score ranges between 300 and 900. While the scores themselves may differ across the bureaus, it is advisable for an applicant to maintain a credit score of above 700. The actual cut offs for an acceptable credit score may vary across banks according to applicant's risk appetite,'' says Mohan Jayaraman, managing director, Experian Credit Bureau, India.

A low credit score is often the result of not having paid your dues on time in the past – either because you have defaulted on payments or not closed credit accounts properly. "Also, if you're using too much of your available credit, especially if you have maxed out your cards, your credit card application will be denied,'' says Chandani.

In order to ensure a good credit score, firstly, make sure you pay bills on time as delinquent payments and collections can have a major impact on credit score. Secondly, keep balances low on credit cards and other "revolving credit". High outstanding debt can affect a credit score. Thirdly, apply for and open new credit accounts only as needed, "Don't open accounts just to have a better credit mix. It probably won't improve your credit score,'' says Jayaraman.

Thirdly, pay off debt rather than moving it around. "It is advisable not to close unused cards as a short-term strategy to improve one's credit score. Owing the same amount but having fewer open accounts may lower one's credit score,'' says Jayaraman.

Lack of credit history: Card issuers prefer to play it safe in cases where the person has no or inadequate credit history. "Having no credit score is bad because it doesn't tell the banks anything about your money-management skills. There is no way the bank can evaluate your financial behaviour,'' says Chandani.

Issuers weigh the risks of losing a customer to that of being saddled with bad debt, and more often than not end up letting the customer go.

"If you do not have a credit history, you may want to develop one by opting for secured credit card that is issued against fixed deposits. Over time, you can build up credit history and apply for a regular credit card,'' advises Chandani.

Eligibility criteria or lower-income level: Banks usually have a minimum annual income criteria for approving credit cards. Application of individuals earning less than the stipulated amount is usually declined. This minimum amount varies from bank to bank.

Past application rejections: A word of caution. If you do not meet the eligibility criteria, it is advisable that you do not apply for the particular product as applying frequently, especially a recent rejection, will also work against you. "If your application was rejected recently, wait for a while, fix whatever went wrong, and then apply,'' says Chandani. Remember, each application lowers your credit score marginally.

Errors: Often, applications are rejected due to errors while filling the form or because application forms may be incomplete.

Address: Proof of residence is very important as credit card issuers prefer stability. Thus, individuals who have just moved at times have a problem in getting a credit card. "Make sure your address is not in the defaulter list,'' says Chandani.

Work Profile: The more stable the financial history of the applicant, higher is the chance of approval.