A score of 750+ is considered as a good credit score. It is a testament to your meticulous planning and management of finances, paying off debts on time, and avoiding extensions, reductions and settlements. Lending institutes value customers like you as you fall in the low risk bracket. This bracket indicates that you are more likely to pay on time and avoid defaults. This also makes you highly eligible for a loan. However, under some circumstances, your loan can be rejected despite your high credit score.
While the chances of your loan approval reduce when you don’t fall under the ‘appropriate age’ bracket, let us look at the other reasons for loan rejection even when your age isn’t a constraint:
- Remarks in CIBIL reports
Your CIBIL report contains comments and remarks from lenders that can, potentially, determine whether or not you get approved for a loan in the future. Remarks such as â€˜settled, â€˜written offâ€™, â€˜foreclosedâ€™, â€˜extended tenureâ€™, â€˜interest rate reducedâ€™, etc. indicate that you required help to repay your loan. Even remarks that show that you missed payments or delayed payments such as â€˜missed paymentâ€™, â€˜DPDâ€™ (days past due), etc. can be detrimental for your credit score and eligibility for a loan. All of these are considered as warning signs by lenders and your loan could be rejected.
- Your loan application was rejected previously
A previously rejected loan application is visible in your CIBIL records. Irrespective of the reason for loan rejection, it reflects badly and can significantly affect your current loan approval.
- You were the guarantor for a defaulted loan
A guarantor or a surety is a person who has signed a contract that states that if the primary borrower fails to pay the loan, the guarantor will repay on the borrowerâ€™s behalf. If you have been a guarantor for a defaulted loan, then you are less likely to be approved for a loan. It is the guarantorâ€™s responsibility to pay off the debt when the borrower cannot. Lenders will see you as less reliable, which will reduce your chance of being approved for a loan.
- Your details match with the defaulters
All the personal, professional and financial details of defaulters are maintained by banks and NBFCs. So if your name, age, address, employment details and such other information, even slightly match with that of a defaulter, then your chances of being approved for a loan reduce significantly.
- You reside in a house previously occupied by a defaulter
Just as loans can be denied when personal and professional details match with those of defaulter’s, loans can also be denied if you are currently living in the home of a defaulter. Banks and lending institutes keep a detailed record of the localities and houses that have high risk of defaulting. So, it might not be what you did, but where you live that could determine whether or not you will be approved for a loan.
- You work where most employees have defaulted
As unfair as it seems, your place of work can also determine whether or not the loan Gods bless you. Lenders store all the information of defaulters. So if you work at a place where even a few of your colleagues have defaulted, then that increases the risk of your loan being rejected. Lenders can assume that the company you work for has an unstable future and salary disbursement issues which could make it difficult for you to repay.
- When you areÂ over-leveraged
Lending institutes make a thorough assessment of your profile and current finances to decide your loan eligibility. One of the factors they look at is your Debt To Income ratio (DTI). This ratio determines what your income is and what amount of it goes towards EMIs (if you have other EMI). Thus, the more the number of debts you are paying off from your salary, the higher the chances of your loan being denied. For instance, you earn Rs. 50,000 per month, and have two loans you are paying towards, one for Rs. 20,000 and another for Rs. 15,000. The rest of the income goes towards personal expenses. In such an instance, you will have a poor DTI, resulting in your loan being disapproved.
- You have taken too much credit in the recent past
People with too many loans on their name are considered to fall in the high risk bracket. They are the ones that, lenders feel, are more likely to default sooner. They will be denied a new loan even if their records are clear and they have repaid fully and in time. Make sure you have not applied for loan many times within the last one year before you approach a bank with a loan application.
- Insufficient tax-paying history
Ideally, a person with a fully-paid income tax history of at least two to three years is favoured for loan approval. It supplements CIBIL reports and helps lenders to assess your creditworthiness. Thus, it is important that you have timely-filled IT returns documents when you apply for a loan. If you have only just begun to fill out IT returns, even then there is a high possibility of your loan being rejected.
- Unfavourable ratio of secured to unsecured loans
Secured loans are the ones given against collateral like house, property, land, cars, etc. Unsecured loans are approved without any collateral. Lenders are wary of borrowers who have higher unsecured loans than secured loans.
- You hop, skip and jump jobs
Though not significantly, but to some extent, if your professional history shows you to be flaky with your jobs then that affects your loan approval. Lenders feel satisfied to see professional consistency before they sanction a loan.
- Your co-applicant has a poor CIBIL history
When applying for a home loan with a co-applicant, ensure their credit history is just as good, or better than yours to get a loan approval. Co-applicantâ€™s poor records are likely to pull your score down, affecting your loan sanction.
- Incorrect details due to technical glitch or human error
As much as everything is automated, the details entered in the system are entered by people and they could be entered incorrectly or may not be updated due to human negligence or technical issues. Though the chance of this happening is extremely rare, a rare chance does remain. You could be identified with a defaulted residence through no fault of your own. Your cards and bills could be sent to an apartment above you. So make sure to check and re-check your details before submitting them, especially when indulging in monetary transactions.
All in all, be diligent with your finances, proactively improve your score and be aware of and safe from factors that can negatively affect your credit record. Also, fill IT returns on time and check your credit report at least once a year to stay on top of the game.