Rejected for a personal loan or credit card? 5 reasons your application might fail

Your credit score is a report card of your credit history and creditworthiness. Banks and NBFCs consider 750 and above a good credit score for approving credit card and personal loan applications. However, a good credit score is just one of the factors considered for approving credit applications. Inspite of having a good credit score, in some cases, your credit application can still be rejected. What are these factors, and how can you fulfil these eligibility criteria so that your credit application gets approved? Let us discuss.

Factors considered for approving credit applications apart from credit score

Some of the reasons why your credit card or personal loan may be rejected even after having a good credit score include the following.

The bank doesn’t offer services in the city that you live in

Some banks and NBFCs operate only in specified cities. They may approve credit products only for citizens residing in those cities. For example, as per the HSBC website, one of the eligibility criteria for applying for the HSBC Live+ Credit Card is the applicant’s city of residence.

The applicant should reside in one of the following cities: Chennai, Gurgaon, Delhi National Capital Region (NCR), Pune, Noida, Hyderabad, Mumbai, Bangalore, Kochi, Coimbatore, Jaipur, Chandigarh, Ahmedabad or Kolkata. So, if you live in any city apart from the above, your credit card application will still be rejected inspite of having a good credit score.

Similarly, the American Express website specifies a list of 19 cities as one of the eligibility criteria for their credit cards. The resident must reside in one of these 19 cities for the application to be processed further, subject to the fulfilment of all other eligibility criteria.

The Standard Chartered Bank website mentions: “Applicants should belong to credit card sourcing cities/locations of the Bank” as one of the eligibility criteria.

To sum up, you must reside in the city from where the bank or NBFC is sourcing credit applications for your application to be accepted and processed further.

You don’t meet the income or age eligibility criteria

Banks and NBFCs specify the income eligibility criteria for credit applications. The income is specified for salaried and self-employed individuals. In the case of credit cards, income eligibility varies from card to card for the same bank. For example, HDFC Bank specifies a net monthly income of more than Rs. 12,000 for the Freedom Credit Card, which is an entry-level credit card. For self-employed individuals, the Income Tax Return (ITR) must be more than Rs. 6 lakhs per annum.

Similarly, for the Diners Black Club Credit Card, a premium credit card, the net monthly income should be more than Rs. 2.5 lakhs for salaried individuals. For self-employed individuals, the ITR must be more than Rs. 30 lakhs per annum.

Similar to income eligibility criteria, banks and NBFCs specify the minimum and maximum age criteria for credit applications. If you don’t fall in the specified age criteria, your credit application will be rejected inspite of having a good credit score.

For example, the HDFC Bank website specifies that an individual should be between 21 and 60 years of age as one of the eligibility criteria for a personal loan. Similarly, other banks and NBFCs specify their own age criteria for personal loans and credit card applicants.

So, even with a good credit score, it is essential to have a steady income source, a stable job, and fulfilling other personal loan criteria.

You change jobs too frequently

If you change jobs too frequently, the bank will consider it as you are unstable in your career. Banks prefer that their personal loan borrowers have a stable career. Career stability ensures an inflow of regular monthly income that can be used to service the personal loan EMI and other obligations.

For example, the HDFC Bank website mentions the following about an individual’s job as one of the personal loan eligibility criteria. The individual should have a job for at least two years, out of which a minimum of one year must be with the current employer.

So, even if you have a good credit score, it is important to have a steady income source with a stable job along with fulfilling other personal loan criteria.

Your DTI ratio is high

The debt to income (DTI) ratio measures the percentage of income used to service debt obligations (loan EMIs and credit card outstanding). Usually, banks consider a DTI ratio of 35% or lower as good for approving personal loan applications, provided other eligibility criteria are fulfilled. Some banks may consider and approve personal loan applications with a DTI ratio in the 36% to 50% range, with additional safeguards in place. With a DTI ratio above 50%, the chances of personal loan application go down significantly.

Before applying for a personal loan, you must check your DTI ratio. If it is higher, you must work on bringing it down before proceeding with your personal loan application.

There is an issue with your KYC documents, KYC process, or income documents

When you apply for a credit card or personal loan, along with the application form, you must submit the Know Your Customer (KYC) documents. These include a copy of your photograph, identity and address proof. If any KYC documents are missing or have any issues, the credit application will be rejected.

The bank may do a physical verification of your residential and office address. If there are any issues in the verification, the credit application will be rejected.

Along with the KYC documents, you must submit the income documents. These may include your salary slips / ITR, bank statement, etc. Usually, banks ask for the last three months’ salary slips or the ITR of the last financial year. Usually, the bank statement required is for the last six months. If these documents are not submitted as required or there is any issue with them, the bank will get in touch for corrective action. If the appropriate documents are not submitted within a specified timeframe, the credit application will be rejected.

You have applied for too many credit cards or loans at the same time

If you make too many credit applications in a short period of time, the bank will consider it as credit-hungry behaviour. The bank accesses your credit profile for every credit application, resulting in a hard inquiry that lowers the credit score. Too many credit applications in a short time can lower the credit score significantly.

In such cases, the bank may view the application as risky and reject it. You must apply for a personal loan or credit card with one bank at a time and wait for the bank to give its decision. If the application is rejected, you may proceed with the next application. You must ensure there is a sufficient time gap between two credit applications.

How to increase your chances of a personal loan or a credit card application approval

In this article, we have understood the various other factors, apart from credit score, considered by a bank or NBFC for approving credit applications. So, having a good credit score while applying for a personal loan or credit card is essential. However, that is not the only criteria.

Before applying for a credit card or personal loan, you should evaluate the various other eligibility criteria. If you don’t, and if there is any issue, your credit application will be rejected, resulting in financial hardship and disappointment. On the other hand, if you pay attention to these eligibility criteria and fulfil them, your chances of a credit card or personal loan application will increase significantly.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.