The process of applying for a credit card is like walking along a fine line. One mistake here or there might cost you the application, no matter how small the mistake may be to you.
This is primarily because the credit card companies or banks are taking huge risks with every credit line they approve. Hence, it is quite obvious that they want to make sure that the applicant meets all their criteria.
Here are 3 common mistakes that every credit card applicant makes.
- Dent in your credit score
To put it straight, your credit score is the primary factor that would determine the gravitas of your application. Therefore, maintaining a good credit score is the key. A good credit score is anything between 700 to 900, while any score between 800 to 850 is excellent.
On the other hand, if your credit score dips below 700, it is already considered an average score. Lastly, anything below 650 is considered outright bad.
So how do you maintain a good credit score? There’s no one way to do it. A number of things, done correctly, combine to put a good score on your credit profile.
Here are some things one could do for a good credit score.
- Avoid late payments: All dues should be cleared at or before the date they’re due. Any and all late payments affect your credit score. Your credit score takes into account both credit card debt, and tradeline or installment debt (mortgages).
So, if you have an existing credit card and/or have EMIs for any sort of loan, make sure to pay them on time. Even if there are times when you are in a financial crunch, make sure to pay your bills out of your savings.
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If you delay your payments by 30 days or so, it is quite likely that your CIBIL Score will drop by about 100 points. Furthermore, there is nothing that constitutes a red alert for credit card companies other than late payments. This makes you, the applicant, come across as an irresponsible individual.
- Avoid rolling over debt:
Rather than directly paying off the due principle of debt. when you take out another loan to pay off that debt, it’s known as rolling over debt.
This is usually a debt taken from the same lender itself, with an increased rate of interest. This can have a very bad impact on your credit score as well. To avoid this, make sure to only take loans that you are confident enough to pay off.
- Do not have a high credit utilization ratio:
Your credit utilization ratio, sometimes called your credit utilization rate, is the number that denotes what percentage of your available credit that you actually utilize. It is usually mentioned as a percentage.
According to experts, having a 30 percent credit utilization ratio is considered good for your credit score. Anything above 30 percent has a bad impact on your credit score.
This is primarily because a high credit utilization ratio implies that you are either overspending or that you have other debts in the market.
- Correct errors in your credit history:
Oftentimes, there are a lot of unnoticed errors in your credit history. Sometimes, a debt that you paid off long back can still show as an outstanding amount.
This might significantly dip your credit score. So, you should check your credit history and rectify any such mistake.
- Do not close old credit card accounts:
Old credit card accounts help you to build a good credit history that might be beneficial in applying for a loan or a credit card.
Further, your old credit cards also come with their credit limits, thus increasing your amount of credit available. This can make your credit utilization go down significantly, and therefore, improve your credit score.
- High debt-to-income (DTI) ratio
Debt-to-income (DTI) ratio, as suggested by its name, is a personal finance measure that compares an individual’s monthly debt payment to their monthly gross income.
In other words, it is also the percentage of your gross monthly income that goes to paying your monthly debt payments. Your gross income is your income before taxes, and other deductions are subtracted from it.
It goes without saying, a low debt-to-income ratio makes an applicant’s profile attractive to credit card issuers. You should try and keep your DTI ratio under 37 percent, to make your profile look good.
- Don’t apply too soon after a rejection
When you are trying for a credit card to apply, the issuers make a request for your credit history; this is called a “hard pull”. One hard pull can not hurt one’s credit score.
However, when you apply soon after one rejection, that creates multiple hard pulls in a very limited period of time. This indicates that you are going through a financial crisis, and are desperate for credit.
Therefore, waiting for some time before applying again is always a wise decision. Waiting for 6 months is often what is recommended.
The Bajaj Finserv RBL Bank SuperCard, with the power of 4 cards in 1, is one of the most innovative credit cards available. The card lets you withdraw cash from an ATM at no interest for up to 50 days.
With each transaction made from this Bajaj Finserv RBL Bank SuperCard. you can also earn reward points that are credited to your account at the end of each month.