Things You Need To Know About Credit Cards

As credit cards have become the need of an hour, Rupeetalk discusses some important facts about credit cards, which you must know before applying for a card. If you are aware of these simple facts, it will become easy for you to comprehend the process better…

What are the minimum eligibility criteria to get a credit card?

The broad minimum requirements to issue a credit card remains more or less same in terms of age, income proof, resident, educational qualification, etc. Within these parameters, banks are free to set their own benchmarks for varied set of customers. For example, generally the minimum salary required to get a credit card is Rs 1.2 lakh. The maximum limit also varies from bank to bank, e.g., bank can put Rs 1.5 lakh for gold credit card. Also, a person has to be above 18 years of age with minimum 10^th pass qualification (as in case of PNB credit card)

Some credit card companies ask for a fixed deposit as security amount to set higher credit limit. For example, Axis Bank for its secured credit card asks for a minimum term deposits of:

Besides the minimum eligibility, you would require to submit the following key documents:

Other than these broad set of factors, issuers may also like to check number of dependents, reputation of company (for salaried employees), profession, ongoing loans/credit cards, etc. All factors combined are aimed at determine the creditworthiness (i.e. ability to service of card debt) of card holders.

Is it easier for salaried persons to get credit card? Are there separate set of criteria for salaried and self-employed for getting credit cards?

Compared to salaried persons, banks usually set higher eligibility benchmarks for self-employed customers to accommodate higher risks resulting from fluctuations in their future income. As long as you satisfy issuers’ benchmarks and prove your creditworthiness, banks will be ready to serve you. Hence, the question of easy or difficult remains dependent upon how well you can prove your creditworthiness.

Broad set of criteria for issuing credit cards to self-employed and salaried employees remain same. However, banks will ask for different documents as income proof like that of IT Returns for pervious years (usually last 2-3 years), which should exceed the minimum income criteria and business details, e.g., client list, orders in hands, location, etc.

How tough is it for a person employed with non-listed firms to get credit card?

Generally, banks perceive higher risk lending to people employed with non-listed firms as they reckon that these companies may or may not have a stable source of income. In fact, in few cases, the income may fluctuate. Sometimes, there could be problems with the designation exaggeration in private firms. For instance, let’s say, a designation of ‘Features Writer’ can be very different as compared to that of ‘Journalist’. So, the credit card norms may be slightly strict for people employed with non-listed space. However, these cases are on the decline as banks are aggressively targeting non-listed space for market augmentation. Also, banks today concentrate more on overall credit worthiness rather than type of companies, so anyone fulfilling these ‘slightly strict norms’, may not find it difficult to get a credit card.

If a person is denied a credit card because his employer is not listed, what could be an alternative to get a credit card?

As mentioned above, cases of denial on account of employer not being a listed entity is on decline, so the need of an alternative has reduced substantially. Even if there is one, the customer can go to another bank, which might accept his request on his credit worthiness. He can also ask for the company in written if he/she thinks that non-listed employer was the sole criterion for application rejection.

Are there any disadvantages of owning co-branded credit card?

A card issued through a partnership between a bank and another company or organization is called a co-branded card. The benefits if these cards come mainly in the form of reward schemes and discounts offered by the credit card company. Co-branding, apart from the reward schemes, also allows for discounts at specific outlets when it comes to using a card. It includes free merchandise, frequent buyer program similar to frequent flyer points, etc. However, co-branded credit cards have following disadvantages:

Often certain professionals and areas are blacklisted by credit card companies. Would you elaborate on the rationale behind it?

It’s true that certain professions and areas are blacklisted by credit card companies because of the potential risk involved and hence chances of due recovery are very low. For example, lawyers, media professionals, police, etc., are scrutinized more carefully, while credit cards are not issued to people working in sectors such as exports, business process outsourcing and aviation. Some banks/ companies even seek a guarantor working in more stable sector. Moreover, some localities or cities are banned on the basis of bad prior experience.

The rationale behind this lies in bank’s strategy to base credit card decisions on residential addresses/areas, rather than only borrower’s income profile.  This is because all banks/NBFs follow robust credit assessment framework and policies, which is not confined to income levels. As a matter of prudent credit policy, they do not lend to customers who, in their assessment, will have difficulty in servicing their outstanding on a regular basis. Banks also avoid lending to customers, who have poor credit history with the same or other bank. Besides this, there are issues such as difficulty in finding addresses and high number of anti-social incidences in that areas, etc., that deter banks.

In case of professions, applications are rejected due to income fluctuations, that is, too high for bank’s comfort. Also, issuers are apprehensive on the basis of higher default rate in the past with people of same profile.

List a few reasons for rejections of credit card application.

Your credit card application could be rejected if: