Imagine that you have worked very hard to raise your credit score over a long period. You now have faith that the banks will grant your loan request quickly and at a reasonable interest rate. Unfortunately, though, your application has been turned down. It sounds complicated, don't you think? After all, you've been taught for years that a lender's choice to lend you money is greatly influenced by your credit score, also known as your minimum CIBIL score for credit card or personal loan.
You may quickly find out where to check your CIBIL score by going to the website of the credit information business. Typically, checking your score will cost you a modest amount of money.
Lenders and financial firms also provide you with the option to check your credit score. For example, you may check your CIBIL score for free at no additional cost when you use the Bajaj Finserv CBIL score calculator. To check your credit score by PAN card, you just need to enter a few details.
It's crucial to remember that the bank or lenders assess other factors in addition to your credit score when granting you a loan. The loan process involves several other variables. In the following part of the post, we have highlighted some of the major ones.
1. Excessive debt
When you apply for a loan, the bank will review your credit history and any open loan accounts you may have. Even if you have a good credit score and have been paying your credit card bills and EMIs, the bank may believe you have too much debt and that you won't have enough spare income to pay it off in the event of an emergency or financial hardship.
Lenders typically don't give regular borrowers precedence. Even if you have a spotless credit history, the lender may believe you are in overdraft if you have an excessive number of loans outstanding. Furthermore, taking out a lot of loans might have an impact on your credit report and score.
2. Loan default
You may already be aware that your payment and credit-related information is assimilated by banks, non-banking financial institutions, credit information businesses, etc. This data includes your name, age, address, job position at the moment, and other personally identifiable information. Even if you have a strong CIBIL score, there is still a potential that your loan application will be denied if any of these details match those of a credit or loan defaulter. Sometimes the borrower's home address plays spoilsport because it may have been the residence of a past defaulter. When the lender notices a red flag like that, they would rather deny the loan application than approve a loan application that has been falsified.
3. Employment instability
Your reliable employment will give lenders confidence in your creditworthiness, which will allow them to approve your loan application. However, they might not think of you as a qualified applicant if they learn that you have inconsistent income and constantly change jobs.
Recall that banks and lenders are searching for applicants who can return the money they have borrowed, thus they strive to pass over any applicants whose employment is shaky.
4. Previous loan rejection
If the borrower's prior loan application was turned down, CIBIL and the previous potential lender still have this information. The new lender looks into this information when the borrower asks for a new loan. This "Rejected Loan" information may also be used to justify the borrower's loan rejection if their CIBIL score and credit information report are both improved.
5. Red flags in CIBIL score
Ignoring the remarks on your CIBIL report is one of the most common causes of loan refusal, aside from poor CIBIL. Whether they are Credit Information Reports or Credit Scores, CIBIL reports are crucial in getting you a loan from a lender. Lenders pay attention to any observations made in these reports other than your three-digit CIBIL credit score. If the remarks in the CIBIL-generated reports include things like you settling the loan by going against its terms and circumstances, asking for a reduced interest rate halfway through the term, or paying EMIs after Days Past Due (DPD), etc., it could harm your chances of getting approved for a loan.
6. Habitual borrower
Borrowers with an excessive amount of loans outstanding are unlikely to receive new loans from banks or non-banking financial institutions. Lenders are concerned that lending money to such an applicant may result in defaults and add to the borrower's credit burden. Your CIBIL Credit Information Report and CIBIL Score are also impacted by frequent borrowing. The lender may believe that the borrower is a dangerous candidate for a loan because of their credit reliance, even if you have repaid your debts according to your schedule. The lenders determine that you are overleveraged in this situation and that taking out a second loan will put you in too much debt. This finding causes the lender to deny the applicant's loan request.
7. Inappropriate secured and unsecured loans
Your loan portfolio ought to include a good balance of both secured and unsecured loans. Secured loans, like home and auto loans, require the borrower to maintain assets like real estate and vehicles as security with the creditor; in contrast, unsecured loans, like credit cards and personal loans, are not secured by the borrower's assets. It is also known as a signature loan for this reason. Even though you may be proud of your high CIBIL score, lenders will refuse your loan if the loans you have taken out historically are unbalanced, meaning that unsecured loans exceed secured loans.
8. Not able to confirm credentials
Regardless of the applicant's credit history, the borrower's application may be denied if the lender is unable to confirm or validate all of the borrower's Key Credential Information for a given amount of time.
Taking an active role in monitoring your financial profile is advised to prevent loan rejection. It is imperative that you consistently monitor your CIBIL score to address any discrepancies in the report and then apply for credit. Additionally, if you work for a company where salaries are not paid on time, or if a large number of your coworkers have missed loan payments or have poor credit, your application may be rejected.
Lenders use a variety of criteria to assess borrowers' ability to repay loans when they apply for them. These factors include the borrower's age, income, and security in their employment—but most importantly, their credit record. Take notice to smoothly navigate the loan approval procedure as a result of the aforementioned and other similar variables that may be causing your loan application to be refused.
Although it may be discouraging to be turned down for a loan, keep in mind that it is a chance to improve your credit habits. Lenders will explain to you in detail why they declined your loan application. Make the most of it to pinpoint your areas for development so you can effectively reapply.
Q. Does the CIBIL score change when a loan is rejected?
- Your credit score will suffer and your prospects of obtaining a loan approval in the future will be further diminished if the loan is denied.
Q. What grounds are permissible for turning down a loan?
- A loan may be rejected for several reasons, including a low credit score, unstable employment, low income, late payments, a high EMI/NMI ratio, etc.
Q. What effects may a negative credit report have?
- The applicant's bad credit history, which lenders view negatively, will be reflected in an adverse credit report. This could result in the loan application being denied.
Q. Does the credit report reflect the debt settlement?
- To hide a distinct area, the loan settlement is also recorded in the credit report. The credit report will show a negative settlement record.