What is Credit Card Appraisal, its Process, Eligibility & Benefits

When applying for a Credit Card, lending institutions run the Credit Appraisal process to check eligibility for the credit product. Therefore, one may think of it as an immediate response to a Credit Card application.

Read on to learn what Credit Appraisal is, its process, eligibility & benefits.

What is Credit Appraisal?

When applying apply for a Credit Card , the Credit Appraisal process is a part of the entire application evaluation. It is the process that lending institutions use to assess an applicant’s creditworthiness based on several parameters they set to determine an applicant’s eligibility.

Financial institutions use the Credit Appraisal process to measure the risk of approving a credit application. Applicants who meet the lender’s eligibility parameters are likely to get approved. There are times when applicants do not meet all the eligibility criteria.

Eligibility Criteria for Credit Appraisal

Various financial institutions have eligibility criteria/conditions to carry out the Credit Appraisal process. These include:

• A Solid Credit History: A solid credit history and a good repayment record increase eligibility for a Credit Card.

• Income and Professional Stability: Credit Card companies and banks assess income and professional stability to evaluate repayment capacity.

Benefits of Credit Appraisal

The credit appraisal process is beneficial for multiple reasons, as it helps credit providers assess eligibility, evaluate repayment capacity and determine the Credit Card terms and conditions.

The key benefits of the process include:

• Establishes creditworthiness as a borrower

• Helps the lender analyse the risk in extending credit to an applicant

• Promotes confidence among the lending institutions about the applicant’s repayment capacity

• Helps the lender determine credit card limits and interest rates

• Reduces the chance of Non-Performing Assets (NPAs), minimising financial loss for the lender

Steps involved in the Credit Appraisal Process

• Application: The lending institution gathers all Credit Card applications and ensures that they have all the necessary information for processing. They also authenticate all the data provided.

• Documentation: The company checks all the supporting income proof documents like salary slips, ITR, identity proofs, address proofs, etc.

• Investigation: Thorough investigation of employment details, credit history, outstanding dues, income stability, etc.

• Financial Assessment: The lender analyses financial statements including income, assets, expenses and liabilities, to evaluate financial stability and repayment capacity.

• Risk Assessment: Credit Card providers make their lending decisions based on risk assessment. The factors they check for include credit history, market trends, purpose of borrowing, etc.

• Lending Decision: The institution approves or rejects a Credit Card application if the Credit Appraisal results are satisfactory. Else, they may ask for more details if required.

• Administration: The final step in the Credit Appraisal process is to draft the Credit Card Agreement, send prompt, up to date information/communication and update the records. Most organisations have a dedicated team to oversee credit administration.

Factors involved in the Credit Appraisal Process

• Market and Industry Analysis: An industrial and market assessment is necessary for evaluating an applicant’s income and repayment capacity.

• Business Plan: SMEs applying for a Business Credit Card must present a convincing business plan to highlight their strategy, financial projections, repayment plan, and market analysis.

• Technical Conditions: The lending company verifies the borrower’s living standard to determine creditworthiness.

• Economic Viability: Lenders consider applicant’s Fixed Obligations to Income Ratio (FOIR) and Loan-to-Value (LTV) ratio to determine economic viability. They check credit history to ensure repayment of Credit Card bills on time.

• Credit History: Applicant’s credit score and past credit behaviour determine the intention and capacity to repay the borrowed credit.

• Liabilities Owned: Checking the liabilities owned ensures that the applicant has not defaulted on previous payments and has minimum liabilities to pay off.

Credit Appraisal is a crucial process that financial companies use to ensure that they lend funds to creditworthy borrowers only. The Credit Appraisal process ensures that applicants can afford to repay the amount on time, thereby reducing their chances of bad debts and financial loss. This efficient system benefits lenders and borrowers, ensuring fair play. For an instant Credit Card approval with flexible EMI options, apply with ICICI Bank now and experience a transparent and seamless Credit Appraisal process.