Frequently Asked Questions
When it comes to credit facilities such as credit cards or personal loans, banks or financial institutions will always perform a background credit check when you apply for the product.
Depending on your credit health, your application may or may not be approved – if your application is rejected, banks or financial institutions do not need to reveal their reasons for the rejection.
So if you are worried about having a credit card application rejected, here’s how you can help yourself before you apply for a new credit card.
Why do banks reject credit card applications?
There is no single reason why banks reject applications, and their standards differ between banks – that’s why one bank can approve your application, and another will reject it.
Generally, it all depends on your credit health – that is, the state of your financial well-being – and what’s called a “debt service ratio” (DSR).
The DSR formula is generally calculated as:
Total Financial Commitments per Month / Total Financial Income per Month x 100
A “good” DSR varies from bank to bank, as they would also have other factors to give a better overview of your financial health.
What happens when I get too many applications rejected?
The best way to understand is to consider the bank’s point of view.
If you have a poor credit score and have applied (and failed to get approved) for multiple lines of credit (such as credit cards) in a short span of time, you are giving the impression that you are in desperate need of money – but with no guarantees that you will be a good paymaster.
If you continue to apply, it becomes a vicious cycle – each rejection severely affects your credit score, which means that you are lowering your chances of getting an application approved with every rejected application.
Why should I care?
It’s simple. If you are deemed not worthy of owning a credit card, what more for loans of bigger amounts, such as a car loan or a home loan?
Worse still, a poor credit score takes a long time to improve, because rejected applications stay in your report for 12 months. If you don’t care about your financial health, the banks also won’t care to help.