My credit application was declined!

We tend to have a sense of where we stand financially. Years of, well, spending money, helps you understand what you can afford, what you can't afford, and how you measure up with the credit bureaus.

But, then you apply for a new credit card or loan, and your application is declined. Why? Are you in debt? A victim of identity theft?

A credit application can be denied for reasons we never imagined. If you can relate, it might be time to pay attention to your credit history.

Let's take a look at possible reasons your credit application was unsuccessful.

Your credit history is limited

Is this your first time applying for a credit card or a loan? It could explain why your application was declined. Remember, lenders check your credit report when you apply for a loan or a credit card. Your credit history indicates whether or not you're reliable in paying back debts. If you don't have much credit recorded, they can't determine how likely you are to pay or not pay your loan, and they will decline your application.

What can I do?

Applying for a credit card is the easiest way to build credit. Credit cards are easy to use at a store or for shopping online. There are also options for affordable credit card with low fees, perfect for first-time users. For example, the African Bank Black Credit Card gives you up to 62 days of interest-free credit, and you can earn interest on a positive balance.

Your income is too small

Credit providers have to make sure that you can afford the credit you applied for. If your salary is too small, they may assume you can’t afford credit and decline your application.

What can I do?

There's not much you can do right now. Ideally, you should find a job that pays more, but that is not an easy option. For now, try to reduce your expenses so that your account balance does not decrease drastically and ask the creditor if you qualify for a smaller amount.

Risky credit behaviour

Have you been spending too much or missing payments? Creditors pick this up when they check your credit report. This is why it's important to pay your utilities and any other accounts you opened on time and in full. Have you been applying for lots of credit? Each time you apply for credit, lenders check your credit report or "pull your credit". This is called a credit enquiry and it stays on your credit report. Too many credit enquiries might look as though you constantly need credit to sustain yourself and this does not work in your favour. This is why you should try not to apply for more than one line of credit at a time.

What can I do?

Make paying your bills on time a priority. If you sometimes forget to make payments, why not try setting monthly reminders on your phone? You can also schedule your debit orders to go off on payday. Lastly, contact your creditors if you think you won’t be able to make a payment on time.

You may also want to avoid applying for more credit unless you really need it.

Your credit utilisation ratio is too high

Do you know what the term 'credit utilisation ratio' means? It’s a percentage of your credit that you're currently using.  It's used to calculate your credit score. It fluctuates according to your payments and spending. It’s best to keep it low because a high ratio negatively affects your credit score.

What can I do?

Keep your credit utilisation ratio low by paying your credit card on time and decreasing your spending.

Working on your credit score and credit history, whether you're building it up from scratch or trying to improve it, is a process. It can't be done overnight. But don't let this discourage you. Rather make small changes that will improve your finances and, eventually, your confidence. Start by downloading your Credit Report (it's free!).

Good luck!