When a customer applies for a credit card, lending companies start the credit underwriting process. The process involves computing the applicant's creditworthiness using analysis, testing, and mathematical formulae.
Different lenders follow different credit underwriting processes, and it is not made public. The computation calculates the risk of offering credit to the customer so that a credit limit can be established. Credible customers are offered a higher credit limit.
The credit quality of customers is checked to ensure that the customer uses the credit card responsibly. Most credit cards are issued with a preset credit limit, and customers cannot use the card beyond that limit. After some time, customers can request an extension of the credit limit.
When a person approaches a bank to apply for a credit card and asks about a credit limit, banks cannot provide a direct answer. Lending companies consider multiple factors before issuing a credit card with a set limit. Banks can grant a higher credit limit if the customer has a longstanding relationship with the bank, with many monthly transactions. However, there are more factors considered for credit limit evaluation:
Earnings determine the repaying capacity of an individual. Generally, the credit limit is set at 2X or 3X of the monthly income. However, this can vary greatly based on the type of bank. Customers who share their payroll information allow banks to verify and validate their income to increase the chances of a higher credit limit.
The 3-digit CIBIL score plays a major role in determining an applicant's credit limit. A CIBIL score of 750 or above can result in a higher credit limit. High-earning individuals with a lower CIBIL score will get a lower credit limit even though their salary is high.
Other loans and credit cards will affect the credit limit evaluation based on prompt payments. When the customer has a good repayment history with quick payments, it will increase the chances of getting approved for a higher credit limit.
Credit utilisation calculates the total credit limit of the customer and the amount they have used. If they have already maxed out on other credit cards, it means that a lot of credit is used. Customers with credit utilisation below 30% get a higher credit limit.
The combination of secured and unsecured loans is called a credit mix and is used to determine credit limits. If customers have paid all bills promptly, having multiple loans will work to their advantage while calculating their credit score.
The time taken to approve a credit card differs amongst lending companies. Usually, banks take at least 1-2 weeks for credit card approval. While the CIBIL score affects the decision, more time is spent verifying customer information such as monthly income, earnings, other loans, etc.
Lenders can reach more customers if they can shorten the credit limit evaluation process to approve a credit card within a few days. The faster approval time will also attract more customers.
By partnering with a business enabler like Tartan, financial products can be delivered quickly by expediting the verification process. The payroll system APIs complete the verification process within a few seconds. It will take only a few minutes to evaluate the credit limit because the verification process is automated. Any employee, including gig workers and independent contractors, can be verified using a single bank API.
Once the customer shares employment records with consent, the Tartan API can verify customer information within 60 seconds. By accelerating the credit approval process, lending companies can quickly deliver credit cards with the right credit limit. It will help them reach underserved markets and attract more customers easily. The quick verification process also assures the correctness of payroll information so that credit limit evaluation can be completed automatically.
FinTech companies have a lot to gain by partnering with automatic verification APIs. The manual process of credit underwriting can be automated using modern tools that deliver quick results and accurate evaluation. FinTech companies can also use the APIs to customise the credit limit evaluation process according to specific requirements easily.
Tartan is an API powered payroll connectivity company that can deliver full-stack verification services. We offer real time income verification platform to verify employment data based on user consent. We help simplify banking by eliminating reliance on manual processes for income and employment verifications and KYC-related verifications. Our API also assesses creditworthiness to make accurate risk assessments with over 30+ valid and verified data points.
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