Are you upset that your CIBIL credit score is high still your loan application has been rejected? You are not alone, there are many like you who has CIBIL credit score of 750+ and still the loan application is rejected. Though the fact is that with High CIBIL score, you have better chances of getting you loan approved. Indeed; most of the banks in India approve the loan application where CIBIL score of an Individual is 750+. There are many other factors also to decide by lender if the application I rejected or approved. You can know more about this in my previous articles.
Now the question is why the loan application has been rejected despite 750+ CIBIL credit score? There are many other factors which helps lenders to take decision on loan application. Below are some of the common reasons for your loan application to be rejected even if the CIBIL score was 750+
Too much into Debts
Too many existing loans where the total monthly outgoing is exceeding approx. 60% of your monthly income is considered as overleveraged by lenders. As per banks, every individual needs approx. 40% of monthly income for living. Though every bank has own internal guidelines however despite good credit score it is important to maintain good debt to income ratio. If you already have too many loans and applying for new one, the better would be to apply for loan consolidation with bank and convert all your loans into one single loan.
Also, if you have many credit cards with High outstanding balance that also gets counted into your liability while looking at income to debt ratio by banks. It is always advisable to utilize maximum 40 to 50% of credit limit and pay total outstanding every month than paying only minimum dues.
Credit Hungary Behavior
One of the most critical credit behaviors which bank looks at while taking decision on the loan application. When in need of money we tend to apply with so many bank at one time to make sure we get the funds anyhow, however; this is the biggest mistake. Every bank makes an enquiry to pull our CIBIL credit report when we apply for loan and this get recorded in Enquiry section of our credit report. You can refer to the previous article on how enquiry section looks like in CIBIL report. We think that banks will not come to know that we have applied with too many banks whereas bank can very well see that you have applied with other banks also which might end up getting the loan rejection or approval with very less amount than you applied for. Banks consider such profiles are credit hungry profiles and can directly impact the loan application decision.
Also, whenever any bank enquires your credit report from CIBIL it affect your score by 10 to 15 points. Hence; ensure not to apply with so many bank together and wait unless you get decision from only 1 bank to try with some other.
Recent loan History
If you recently have taken any loan and applied again in same month or within 3 months of a new loan, bank consider this as negative despite you have good credit score. Always make sure not to apply for loan too frequently. In case of any emergency where you really need funds, try and arrange funds from friends and family but try to avoid applying new loan. Loan rejection also impacts the CIBIL Credit score negatively.
Default / Settlement in Past
Everyone in life sometimes gets into a situation where he/she cannot even pay the EMIs or Card payment on time. Delayed or no payments gets recorded in CIBIL credit report in DPD section with the days by which payment is delayed from due date or not paid (Please refer to previous article on DPD to understand this section better). Once this delay starts, we get into a situation where we get an advice to settle the account and close. The settlement most of the times happen by paying only principle amount and not paying interest, late charges or penalties etc. to banks. This is the biggest mistake one can do. Once the account is settled, bank reports this to CIBIL and CIBIL shows the balance amount in write off section of your CIBIL report.
Write off amount is most negative factor for all bankers and despite you have worked hard to improve your CIBIL score and is now 750+, still most of the bank will not give you loan for approx. 10 to 15 years after the settlement was done. If you are in such situation where you are thinking of settling your account, don’t do that. Talk to banker and find out a payment plan suitable for you and pay complete balance amount to lender. This will help you to be eligible for loans in few years and definitely be looked favorable by few lenders. The only objective is not to default on even single Rupee of any bank.
You became a Guarantor of a Defaulter
We at times become loan guarantor of our friends or some relative without thinking twice. Think twice before you be a guarantor now. Default by that person in payment or any settlement by him/her will be recorded in your CIBIL credit report also. Once you become guarantor of someone, you become equal responsible for that liability to pay off to bank on time. Make sure not to be guarantor of someone whom you do not trust or not aware of his financial conditions.
High Unsecured debts
Your credit portfolio should always have mix of secured and unsecured loan. Secured loan such as home loan, loan against property and unsecured loan such as personal loan or credit cards. If you are applying for a personal loan and already have 3 personal loans running with 3 credit cards with outstanding balance then bank will consider this negatively. It is assumed as unfavorable credit behavior even if you are paying all EMIs on time and have CIBIL score of 750+.
Wrong Data in Your Report
At times due to some technical issues there are many chances that your CIBIL Credit report has been updated with few credit details which does not belong to you. In that case, if the details updated shows default, settlement or very high DPD (Days past due) in past then it will hamper you credit report. In that case you need to get in touch with CIBIL and raise dispute to get the accounts removed which does not belong to you. Once the report is updated, you will be able to apply for the loan again.
These are few common reason which can lead to reject the loan application even if the CIBIL Credit Score of an individual is 750+.
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By Smarth Thukral
who heads enabling function & NRI Product Strategy for one of the leading Start Up in India. Beyond education, I have 15 years of corporate work experience and is still counting. I am passionate about writing blogs on various categories which broadly includes, Start Ups, CIBIL, Finance, Blogging.