Banks and NBFCs specify income eligibility criteria for credit applications.
Your credit score is a report card of your credit history and creditworthiness. Banks and NBFCs consider a good credit score of 750 and above for approving credit card and personal loan applications. A good credit score is one of the factors considered for approving credit applications. Even with a good credit score, in some cases, your credit application may still be rejected. What are these factors, and how can you meet these eligibility criteria so that your credit application is approved? Let’s discuss.
Some of the reasons why your credit card or personal loan may be declined despite having a good credit score include:
The bank does not provide services in the city
Some banks and NBFCs operate only in specified cities. They can approve credit products only for citizens residing in those cities. For example, according to the HSBC website, one of the eligibility criteria for applying for the HSBC Live+ credit card is the applicant’s city of residence.
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 other than the above, your credit card application will be rejected even if you have a good credit score.
Unable to meet income or age eligibility
Banks and NBFCs specify income eligibility criteria for credit applications. Income is specified for salaried and self-employed persons. In the case of credit cards, income eligibility varies from card to card for the same bank. For example, HDFC Bank specifies a monthly net income of over Rs 12,000 for the Freedom Credit Card, an entry-level credit card. For self-employed individuals, the Income Tax Return (ITR) per annum is Rs. Must be more than 6 lakhs.
Change jobs frequently
If you change jobs frequently, the bank will consider it because you are unstable in your career. Banks prefer that their borrowers have a stable career. Career stability ensures a regular monthly income stream that can be used for personal loan EMIs and other obligations.
Higher DTI ratio
Debt to Income (DTI) ratio measures the percentage of income used for debt obligations (loan EMIs and credit card dues). Generally, banks consider a DTI ratio of 35 percent or below as good for approving personal loan applications, provided other eligibility criteria are met. Some banks may consider and approve personal loan applications with a DTI ratio in the range of 36 to 50 percent with additional collateral. With a DTI ratio above 50 percent, the chances of applying for a personal loan decrease significantly.
KYC document issues
When you apply for a credit card or personal loan, along with the application form, you must submit Know Your Customer (KYC) documents. This includes a copy of your photograph, identity and address proof. If any KYC documents are missing or there is any problem, the credit application will be rejected.
Many apply
If you make too many credit applications in a short period of time, the bank will consider it as credit-hungry behavior. Banks access your credit profile for every credit application, resulting in hard inquiries that lower credit scores. Too many credit applications in a short period of time can significantly lower a credit score.