Consider a scenario where you have spent a lot of time and energy in building a good credit score. Now, you are confident that the banks will readily accept your loan application and offer you low interest rates. But, unfortunately, your application gets rejected. Sounds confusing, right? After all, all these years you have learned that your CIBIL score or credit score plays a vital role in influencing the lender's decision to lend you money.
So what could have gone wrong?
Well, it’s important to note that your CIBIL or credit score isn’t the only thing that the bank or the lenders take into consideration before approving you a loan. There are several other factors involved in the lending process. Here are a few.
Generally, lenders do not give preference to frequent borrowers. If you have too many loans under your name, the lender might assume that you’re overburdened with debts, even though you have a clean credit history. Not just that, frequent borrowing can also affect your credit score and report.
Credit report comments
Besides your credit score, your credit report comprises various other comments made by your lenders. For instance, if you have settled a loan with your bank or any financial institution, the same will reflect on your credit report. And if lenders come across comments like “settled” or “written off” on your credit report, it can potentially hurt your loan approval prospect.
When lenders find out that you have a stable job with a steady flow of income, they’ll feel confident about your creditworthiness and approve your loan application. On the other hand, if they come to know that you frequently change your job and have an instable income, they might not consider you to be an eligible candidate.
Remember, lenders or banks are looking for applicants who can repay the money borrowed and hence they try to give a miss to all those candidates with an unstable nature of job.
Irregular tax paying record
Banks or lenders are highly in favor of loan applicants who have regularly filed their income tax in the recent past years. That’s because it acts like an additional piece of information, other than your credit or CIBIL score, for the lenders to determine your financial behavior thereby leading them to the right direction.
Rejected loan application
If your loan application has been rejected before then perhaps the CIBIL or the previous lenders holds its record. So, when you apply for a new one, this record is pulled up by the current lender. This information can outweigh the efforts you have put in building a good credit score and consequently hurt the overall loan approval process.
Too many unsecured loans
If you have taken too many unsecured loans in comparison to secure ones, it may repel lenders from approving your application. Why? Because secured loans are backed by collaterals, which are considered less risky by the lenders. Whereas, unsecured loans are collateral-free and hence considered more risky. So, even if you have a high CIBIL or credit score, your loan application can get rejected due to an unfavorable ratio of secured loans to unsecured loans.
Inappropriate loan application
The information provided on your loan application acts as a catalyst to boost your credibility. Ensure to go through your application attentively and fill it up with care. In case you forget to provide a copy of any of the necessary documents such as your pay slip or identity proof, your loan application can get rejected.
Please note that lenders always verify each and every document provided by you, and any inconsistency can cause damage to your chances of securing a loan.
Weak credit score of co-applicant
In case you are applying for a joint loan, the credit score of your co-applicant will be taken into consideration. So, if he/she has a poor credit score, your loan application can get rejected. Therefore, it is highly recommended to check the credit report of your co-applicant before you decide on applying for a loan.
If you are applying for multiple loans or credit cards with multiple lenders, the CIBIL considers you as a frequent inquirer. And, even if you have a good CIBIL or credit score, your loan application can be downright rejected by the lender.
Being rejected for a loan might feel disheartening, but remember it is an opportunity to work on your credit behavior. Lenders will give you a proper explanation as to why your loan application has been turned down. Use it to your advantage to identify the areas of improvement and apply again successfully.