July 22, 2025 · 11 mins read
Santhosh Kumar
Everybody wants a credit card to maintain a social status. People often believe that having a credit card indicates affluence and the ability to afford anything. But tell me, when has it ever happened that what we desire always comes to us? The answer to this question for the rich will always be, while for others, it would be maybe once in a while. The same goes for credit cards, where people desire a nice, rewarding card but then get rejected for mere reasons upon applying. This is where credit card appraisal comes in. For example, you visit the doctor for a checkup to see whether you are healthy or not. Similarly, credit card appraisal is akin to sending your card for a checkup. It checks your spending habits, credit score, and payment history to assess your financial performance.
Credit card appraisal, also known as credit assessment, refers to the thorough evaluation of an individual's financial details and creditworthiness by credit card companies. From the initial application submission to the final decision of approval or rejection, each step in the credit card appraisal process is crucial in assessing an applicant's suitability for acquiring a new credit card. Continue reading to learn the meaning of credit card appraisal, its process, and its eligibility criteria.
Credit card appraisal is the process by which credit card companies evaluate an applicant's application for a new card. During this evaluation, the company checks the applicant's financial information, credit history, and creditworthiness to determine eligibility for a credit card. This assessment enables the credit card company to make an informed decision on whether to approve or reject the applicant's application.
To determine one's creditworthiness and eligibility for a new credit card, a thorough assessment is conducted, which includes submitting an application with all the required documents. The credit card company then prepares a detailed report based on the evaluation and decides whether to accept or reject the application.
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The credit card appraisal process includes several steps that are important in determining the applicant's eligibility for a new credit card. All the steps involved in the process are explained in detail below.
The process of credit card appraisal begins with the submission of an application for a new credit card, which includes all personal details related to the applicant, as well as employment details.
After submission, the credit card company, upon receiving the application, requests that the applicant submit all documents related to the information provided in the application, which include identity proof, address proof, and documents related to income, such as salary slips or tax returns.
Upon receiving all the documents, the credit card company then conducts a detailed analysis of the applicant’s credit history, which involves credit reports from CIBIL. The reports are checked to see the applicant’s payment history, recent credit inquiries, and outstanding debts.
After the credit assessment is complete, the credit card company will review the applicant's financial situation, which may include their annual income, existing debt, and financial stability.
After all the analysis and assessments are complete, the credit card company prepares a detailed report to determine whether the applicant is eligible for a new credit card.
The credit card company, after thoroughly evaluating the applicant's creditworthiness and financial stability, decides whether to approve or reject the application.
Suppose the credit card company approves the application. In that case, it proceeds with the administrative tasks related to issuing the new credit card, which involve setting the credit limit, establishing the card's terms and conditions, and preparing the necessary documentation for the applicant to sign.
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Credit history plays a crucial role in the credit card approval process. The credit card companies review your report to see how you've managed your credit in the past, including payment history, outstanding debts, etc.
One of the most important factors in credit card appraisal is the financial situation. The credit card company will evaluate your annual income, current debt, and ability to manage additional credit.
Making timely payments on your current credit accounts can positively impact your credit card appraisal, as it demonstrates your responsibility in paying back on time.
One should keep in mind that when your credit report is being checked, all previous credit card applications and loan requests will also be taken into account, as they may raise concerns. If you have applied for multiple cards within a short period and those applications have been rejected, the credit card company will likely reconsider your request before approving it.
The credit card company will assess your employment details and income to determine whether you have a reliable source of income.
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Some of the factors that the financial institutions evaluate before approving personal or corporate credit appraisals are as follows:
Income: The total income of the individual is examined to determine if the borrower has a stable income and job security.
Repayment Capability: A crucial factor in determining an individual's repayment capability is their ability to repay the amount borrowed from the bank. The higher an individual's repayment capability, the better their chances of getting the credit approved.
Assets Owned: This is information that is analysed and kept with the bank to be used as collateral in case the borrower is unable to repay the amount borrowed.
Liabilities: This ensures that the borrower has not defaulted on any prior payments and has minimum liabilities they can afford to pay off.
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There are specific parameters that credit providers consider when evaluating borrowers to determine their creditworthiness before extending credit. Some of the factors that are taken into consideration are as follows:
Technical Feasibility: This is where the bank assesses the borrower's living conditions and standard of living, which are essential factors in determining whether the individual is creditworthy or not. The application is rejected if the borrower has a poor credit appraisal score.
Economic Viability: This is where factors such as LTV and FIOR are taken into consideration, and the borrower’s credit history is checked to ensure that the individual will be able to return the funds that were provided as credit.
Bankability: This step consists of steps like a credit interview to determine the borrower’s creditworthiness, and the individual’s profile is scanned, including information on valuable assets that can be used as collateral.
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To be eligible for a credit card appraisal, one needs to have a good track record of responsibly using a credit card. This means making timely payments, using only a portion of your available credit, and avoiding too many credit inquiries, which are some of the important factors to keep in mind.
Age: The applicant should be within the age limits set by the credit card company, that is typically between 18 to 65 years old.
Income: The applicant should have a stable source of income, meeting the income requirement set by the credit card company.
Credit History: Credit card companies prefer good credit histories with responsible repayment behavior. A higher credit score increases the chances of approval.
Debt-to-Income Ratio: With this ratio, credit card companies compare a person’s current debt to their income to see if they can handle more credit or not.
Nationality: Some credit card companies have specific eligibility criteria based on the applicant’s nationality
Capacity refers to a borrower’s cash flows. A healthy, consistent cash flow indicates a borrower’s ability to repay a loan based on their current revenue or income scenario. Borrowers must submit their bank statements to demonstrate proof of revenue or income to lenders.
Going forward, the terms of the loan must align with cash flows. For instance, a home loan lender typically considers a 30 to 35% debt-to-income ratio. This ratio ensures that the monthly Equated Monthly Instalments (EMIs) are affordable and manageable for the borrower.
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As the name suggests, capital refers to a borrower’s reserve of extra cash. This cash must not be used or required for the business’s daily operations. For instance, business owners may hold financial and non-financial assets of a specific value. Financial assets refer to savings or investments, while non-financial assets stand for real estate and machinery.
An individual borrower may also have a reserve of savings or investments aside from their monthly income. The implication of having capital is this: borrowers are not dependent on their immediate income or revenues to make EMI payments. They can continue making payments even if their revenues or income are temporarily stopped.
A borrower's past behaviour can be indicative of future behaviour. Hence, lenders look at past credit patterns to understand a borrower's attitude towards credit.
The adoption of superior credit appraisal software helps isolate all bank transactions related to EMI repayments for loans, credit card payments, or any other type of credit.
Thus, lenders can get a clear idea of debt repayment patterns, including missed payments, penalties for bounced cheques, and late fees. Credit scores and reports, additionally, offer insight into a borrower's credit patterns and potential to demonstrate positive credit behaviour.
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Lenders typically feel more confident about giving a loan when collateral is involved.
Say an individual borrower takes out a home loan or purchases a car with an auto loan. In these cases, the home or car serves as collateral. On the other hand, a business may take out a loan to purchase real estate or machinery. In these cases, the property, machinery, and invoice value serve as collateral.
If the borrower fails to repay the loan, the lender can seize the respective collateral, such as a house, car, property, or machinery, as applicable. Thus, collateral-based loans are considered lower on the risk scale.
Understanding credit card appraisal is important for anyone who has a credit card. It's a way for credit card companies to help you build good credit and provide you with more opportunities. The appraisal process includes a thorough assessment of an individual's personal and financial details, along with their creditworthiness, which will determine if he is eligible for the card or not. One should remember that from the start of the application process to the decision of approval or rejection, every step in the process is important. By using your credit responsibly, you can make the most of your credit card appraisal.
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Credit appraisal in banks is an essential function to ensure that all borrowers can repay the loan amount to the bank and do not miss any instalment payment dates.
The 5 Cs of credit are:
1: Capacity
2: Character
3: Capital
4: Collateral
5: Conditions
Documents used for credit evaluation are:
1: Income statement
2: Cash flow statement
3: Proof of Identity
4: Address Proof
5: Business Proof for corporate credit appraisal
One way to reduce your credit score is to make late payments. Keeping your payments in check and paying back loan amounts on time can help you maintain a good credit score and get loans faster.
Documentation such as income proof, identity proof, tax returns, bank statements, and credit history reports facilitates a successful credit appraisal process.
The credit appraisal method assesses the creditworthiness of individuals or companies by analysing attributes such as credit history, income stability, debt-to-income ratio, collateral, and financial health to determine repayment capacity.
A positive credit evaluation makes it easier for borrowers to obtain loans and credit facilities with lower interest rates, higher loan amounts, and quicker approval procedures.
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