22-Oct-2016 written by : FSI-Team
Mr. Kumar is a smart individual, and so when he needed a Personal loan he didn’t start sending off loan applications impulsively like most people. He knew his credit score was good but it could have been better. So, he worked on improving it, and waited for a few months until he was satisfied with the score. Finally, he applied for the loan and waited, confident that it’ll be approved. However, 2 days after the submission his bank called and informed that his application was rejected!
Even though CIBIL score is the most influential factor in the loan approval process sometimes your application can be rejected despite have a good score. There are several other reasons that can make your lender reach out for a red flag. Here are some of them:
Guarantor For a Defaulter: A lot of people become loan guarantors for their family and friends without knowing the consequences. For instance, say you have become a loan guarantor for someone and they default on the loan in future. Not only this will have an impact on their CIBIL report but on yours too. Even though the degree of damage will be higher on the borrower’s side you too also have to face the consequences.
Comments in CIBIL Reports: If you have never checked your CIBIL report yourself, then you may not know that apart from your personal information, and the score itself, the report can also contain remarks or comments from your previous lenders. These comments can sometimes play a role in loan rejections. One of the remarks that you don’t want to see in your report is “settled”. When you default on a loan and fail to pay back the amount even after a long time then the bank may approach you and propose to settle for a lower amount that you are comfortable in paying. Once you have paid back the amount your account is closed and you are free from any obligation. However, the incident is mentioned in your report and the lender marks the transaction as “settled”. Whenever you will apply for a loan in future the lenders will see the remark and deny your application immediately.
Tax History: Believe it or not many banks find it easier to trust people who are responsible tax-payers. Those applicants who have been paying their taxes on time are more likely to get a loan approved than the ones who try to avoid tax payments.
Applicant Mistaken For a Defaulter: If the personal details submitted by you are mistaken for a defaulter then the bank is likely to reject your loan even if your CIBIL score is excellent. Sometimes when people move to new houses that were previously owned by defaulters then the bank mistakes them for the defaulters. If this happens to you however, then you can inform the bank of the same and resubmit your application.
High Credit Utilization- If your credit report shows a history of you taking large amount of credit in the past then your bank may consider it a "credit hungry" behavior, and deny your loan on the account. Thus, it is always advised that you take loans or use credit cards only when you really need to.
Limited History- The longer is your credit history the easier it is for a bank to trust you. What happens is that when you have a long history of credit utilization then your bank can evaluate your behavior and see if you are consistent in paying your loans. On the other hand if you have a short history then it could be difficult for them to have confidence in you.
A high credit score can be incredibly helpful when you apply for loans. However, there are several other factors that are explained above which you should be careful about if you want to ensure that your applications don’t get rejected. If you will take note of them and adjust accordingly there is no way you can’t get a loan of your choice.