Why High Cibil Score Does Not Guarantee Loan Or Credit Card


Cibil Score Not Guarantee For Loan

 
 

One of the advantages of having a strong CIBIL score is that it often makes other financial milestones easier to attain. People with excellent credit are usually eligible for better rates on loans, and they typically have better chances of being approved for important loans like a mortgage.

That makes it all the more surprising when an unexpected rejection arrives.

While a good CIBIL score definitely helps you get approved for loans, it’s not a magic key. Even someone with an excellent score can be turned down for a new loan.

Resist the urge to rip the rejection letter into tiny pieces. You’ll need it to understand what other factors weighed into the lender’s decision, and how to respond.

Insufficient employment record or income

Your income and the time you have worked in your organisation plays an important role in lenders deciding with regards to the approval or funding of your loan request. If you wish to get a personal loan, minimum three years of work experience and at least a year in your current organisation, goes a long way in securing credit. While assessing your eligibility, lenders will assess the stability of your job before deciding whether or not to extend credit. If you have a temporary job profile, are on probation, or are in-between jobs it may turn out to be a difficult task to get a personal loan as lenders prefer Borrowers with stable and regular flow of income.

Incorrect details

While checking your eligibility to service loans the lender will ask you to furnish various documents and ask to fill out some forms by way of application. If the details that you provide turn out to be incorrect or insufficient as per the standards set by the lender, your application may be turned down. Have some basic documents like aadhar card, bank statements, salary slips and ITR helps.

Rejected loan application or a default in the past

Your CIBIL score and report play an important role in deciding your loan’s fate when the lender is assessing your eligibility for a loan. If you have been denied credit earlier or have defaulted on a previously accessed credit line, it will show up on your credit report and diminish your chances of getting a personal loan. To avoid getting into such a situation, make sure you make a continual attempt at maintaining a high CIBIL score by making timely payments on loans taken in the past.

A poor CIBIL score or bad credit history

As pointed out earlier, your credit history plays a vital role in assessing your eligibility for a fresh line of credit. If you have a history of credit card defaults, not making timely repayments, have a credit utilisation of over 40% (credit utilisation is the total amount of credit you use as against the total amount made available to you) it is likely to reflect poorly on your CIBIL score. Bad credit history and bad CIBIL score is another reason why you may not get a personal loan.

However, those with not such a flattering CIBIL score do not need to lose heart. Personal loan with bad credit are a possibility in the modern day and do not have to go from pillar to post looking for one!

Age of Applicant

Lenders take the age of the applicant as a very important factor when assessing a home loan application. If you are nearing retirement, lenders may feel that you do not have sufficient income years left to repay the loan. Lenders may feel that you don’t have sufficient repayment capacity. Thus, your home loan application might be rejected. However, you may be offered a short-term loan with a very high EMI if the lender feels that you have enough repayment capacity.

Error in Credit Report

You should always check your credit report for any discrepancy. There might be some error in your credit report that may result in rejection of your home loan application.

Frequent Job Hopping

One should always look for better job prospects so that one can advance in their career. However, frequent job hopping does not bode well with lenders. If you change your job more than once within a year, it creates a sense of uncertainty about you in the lender’s eyes.

Incomplete Documentation

Providing complete documents is the key to getting a home loan. If there is any discrepancy in your documents, your home loan application will be rejected. You need to make sure that you submit all original and complete documents to your lender. Failure to do so will result in home loan application rejection.

High number of dependents

You should be aware of the fact that lenders take note of your dependents. If you have more than three dependents, lenders might be hesitant in giving you a home loan. You need to show your lender that you don’t have too many dependents.

Change from Salaried to self-employed

If you recently became an entrepreneur, it might be difficult for you to get a home loan. If you changed from salaried to self-employed, you will have to prove your business acumen, generate profit for a couple of years before the lender feels that you are capable of getting a home loan. Thus, you should not apply for a home loan just after starting your business. It would be better to wait a couple of years, obtain stability, and then apply for a home loan. This will increase your chances of getting a home loan.

Employer is Not Approved

It is not just your income that determines your eligibility for a home loan, your employer’s stature plays a part as well. If your employer is a startup or a company that has not been able to generate profit in the recent years, lenders might not be satisfied with your employer’s profile. If this happens, your home loan application might be rejected.

Multiple Existing Loans – High Debt

If you have multiple existing loans and high-interest payments, lenders may question your repayment capacity. Having too much debt may come off as negative and may result in rejection of your home loan application.

No Dues Certificate from earlier Lender, not available

Please make sure that your seller is able to provide a No Dues Certificate from their lender if they took a loan previously. If they are not able to prove that they have paid their previous loans in full, it may lead to rejection of your home loan application.

Educational Qualification

This may come off as a shock to you but your educational background is a key determinant of your home loan eligibility. Lenders correlate your educational qualification with your income generating capability and ability to remain employed without being jobless. Having a good educational qualification will strengthen your home loan application.

Work Experience of Applicant

Applying for a home loan right after your first job might not be a good idea. Not everyone gets a salary of more than Rs. 10 lac right after graduation. It is better to wait for a couple of years before applying for a home loan. Lenders don’t approve home loan applications of freshers. They are comfortable providing home loans to people who have a minimum work experience of 2-3 years.

Lot of co-owners

Don’t plan on buying a home with too many co-owners. If you’re a joint family which includes 2 brothers and 2 sisters and you wish to purchase a home jointly, lenders might be hesitant in giving you a home loan. Having a lot of co-owners can lead to a rejection of your home loan application.

Processing Fee Cheque is Bounced

Processing Fee is the first of many fees that you pay lenders to process your loan. You need to be sure that your cheque for processing fee does not get bounced. You should avoid such a fiasco. If this happens due to insufficient funds in your bank account, it is highly likely that your home loan application will be rejected.

Downpayment amount not available

It is essential to have sufficient downpayment available when applying for a loan. If you are not able to show sufficient bank balance or assets that can be used as a downpayment for the loan, your home loan application might be rejected. Borrowing from friends and family later is not acceptable by the lender.

Mismatched Signature on Documents

Mismatch of your signature is a big negative when it comes to documentation. Your signatures on the home loan application should match documents that you submit to the bank. Also, your signatures should match the lender’s records if you have an account with the bank.

No Objection Certification on Previous Loans

Lenders need to ensure that your previous closed loans are actually paid off. All lenders require No Objection Certificate from of any previous loans that you closed. Failure to provide the No Objection Certificate will lead to rejection of your home loan.

Delay In Loan Repayment Guaranteed By You

Repaying your loans on time is a good way to maintain a good CIBIL score. However, you need to make sure that all loans that you guarantee for your friends and family are being repaid regularly. If these other loans in which you are a guarantor, are not repaid on time, your CIBIL score will be affected. Lenders will take notice of this and it may lead to rejection of your home loan application.

Change in income or low bank account.

The dollar figure on your paycheck doesn’t affect your CIBIL score. It does, however, affect your eligibility for certain new credit accounts, including a mortgage, car loan, or even a credit card. If your income changes, is too low, or if your bank balance doesn’t support the level of assets the lender requires, your application could get rejected.

High debt-to-income ratio.

The debt-to-income ratio is the percentage of your income that is spent on required debt payments. A high DTI is a major red flag for lenders, and it’s a factor that may not be in line with your CIBIL score at all. For instance, you could have excellent credit habits, with no late payments at all on your credit history, and no outstanding credit card debt at all. But if you pay $1,000 per month for rent and $300 per month each for your student loan and your car payment, all on a $40,000 salary… you’ve got a 48% debt-to-income ratio and that could disqualify you from the loan you want. Lenders may be worried that you’ve already got as much debt as you can handle.

Recent late payments or collections account.

Imagine you’ve paid your credit card bills on time for years, gradually building a strong CIBIL score. Then, for whatever reason, you suddenly miss a few payments. Unfortunately, those late payments hurt you more than they hurt consumers who had poor credit to start with. Your CIBIL score probably took a nose dive. The higher it the score, the harder it falls when a serious derogatory event shows up in your file.

It’s a good idea to check in periodically on your CIBIL score. Calculating scores is a complex process. Credit history, prompt payments, credit utilization, and other factors affect the final number. It can be easy to focus on one of your good habits and assume that your CIBIL score must be high, when in reality there may be issues affecting your score. A 5-year-old collections account you’ve long forgotten could still have a serious impact on your score.

It’s also possible that there are errors on your account. Data for a person with the same name, or whose social security number is similar to yours can end up in your file. In that case, your score could be suffering through no fault of your own.

How CIBIL scores are calculated also changes from time to time. For example, Transunion Score is updating its algorithm later this year. The new system’s approach to trended data will, in general, look more favorably on people who are paying down debt compared to those whose debt increases or who only make minimum payments, even if those payments are on time.

The new system may also evaluate large credit limits as a bad sign, since a borrower could theoretically incur a lot of debt quickly. People with high CIBIL scores stand to see the biggest impact. If a lender evaluates your credit using a new system, you may be surprised at the result.



 

 
 

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