Do you want to know, how well credit card business is doing in Pakistan? According to the most recent report published by State Bank of Pakistan “Payment System Review “for the period of July-December 2016. There are 36.2 million payment cards in circulation. Debit cards hold the highest percentage of 48% whereas; credit cards are on the lower side with 3% only. Almost 1.2 million credit cards are used as a payment instrument.
Credit cards are still in the process to gain some momentum. If, you are thinking to apply credit card from 12 major banks in Pakistan. Then don’t forget to keep in mind some of the major factors that will lead to rejection of credit card application.
Here, we will discuss top five reasons that predominantly lead to non-acceptance:
1. Your credit history isn’t so impressive!
When banks issue credit card, they look into your credit history. Your debit- to credit ratio needs to be healthy. Most of the banks in Pakistan will refuse the application due to delayed payments. Keep this ratio low so the issuing bank is comfortable lending you money.
Normally, banks look into your ECIB report. Electronic Credit Information Bureau is central database created by state bank of Pakistan. This report provides the information about the individual’s history of lending offered by banks. That’s not it; this tool also gives complete information about your payment schedule and burden on your income with respect to your monthly installments.
Banks rarely give you credit when you need the most. Keep your report clean by filing your income tax, timely payment of loan installment and finally, paying credit card bills within the grace period. Take advantage of good credit lines when you are flying with best credit scores!
2. Expenses more than your monthly income
The Income statement is a reflection of your financial progress. Banks don’t do business with you infect they invest in your income statement. If your expenses are more than income then banks will barely look into your application. According to Forbes, your credit score is not enough to win you a bank card.
Your income is the key for approval. It’s quite obvious, “who will sit in a sinking boat”?
According to Socio-Economic Status of Pakistan, 15% and 25% Pakistanis falls in the category of rich and upper middle class.
The picture explains, why credit card is still not a popular payment instrument in Pakistan! Banks/DFI’s have market of 40 million of Pakistanis. Almost 130 million people don’t have enough resources to repay the loans.
State bank of Pakistan has issued clear instruction in this regard. There is a complete manual regarding operational guidelines for credit card business in Pakistan. In this guideline, chapter 2.5 instruct the Banks/DFI’s to properly assess the credit history before issuing credit card to any applicant. Normally, the risk department or compliance department is responsible for customer financial evaluation.
3. False credentials
Don’t try to mislead your bank it may cause legal consequences to you. Especially in the situation when your business is going down and you wind up with debts you can’t pay. Misleading information results in two possible ways. First, the customer deliberately tries to overstretch its income statement to get hold of a credit card. Secondly, the illiteracy rate in Pakistan is drastically low. Consequently, people are not aware how to give accurate information to the banks.
According to Pakistan bank association, Credit card Pakistan has recorded the highest default rate since its arrival. It is considered as the most unsecure mode of financing because of no security from the borrower. Still, People consider it as a luxury facility and hold two to three credit cards at the same time.
KYC (know your customer) policy helps the banks/DFI’s to verify customer income, phone, postal address and other relevant details. Try to give accurate and updated information to the banks. Once, you will be caught red- handed then it will be difficult to get out of the bank “clutches”.
4. Too many credit lines
Have you availed too many credit lines in a recent time? This practice will affect your credit profile. Too many hard inquires will categorize you as a riskier borrower. Further, it will clearly indicate that you need loan due to financial setbacks. Analyst suggests that, if you are an active credit card user then focus on building credit history with one or two cards. Keep your debit-to-credit ratio below 30%. None the less, it is a wise decision to avail credit with low interest rate but keep it for short period of time.
Banks/DFI’s can sanction limit up to Rs 5,000,000 to their prime customers on the basis of their track record, credit worthiness and financial position. Try to focus on your sending habits rather than focusing on the credit limits.
5. You are too young to apply credit card
You can apply for credit card if you have crossed the 18 year age limit. It also simply means that you should have National identity card issued by NADRA. Furthermore, bank may approve your application as a minor but Pakistani law doesn’t allow taking legal action against a minor. But, banks will not take this risk in case you get default.
However, you can get the card under the age of 18. In that case, you parents will require to co-sign the application. There is a risk involved in that case too, any negative activity will appear on both primary and authorized users.
Both, commercial and Islamic banks haven’t shown interest in consumer financing in last decade or so. The primary reason is the borrower guarantee. The same factor has affected the credit card business. Credit card in Pakistan has limited market. Banks prefer to target a specific segment of Pakistanis.
Lenders, regulatory authorize and more importantly customers need to be more responsible and rational. As Charlie Munger said,
“Don’t let your credit card debt take over; you can’t get ahead paying the eighteen percent”